The recent regulatory action taken by the US Federal Reserve against Customers Bank has raised concerns within the crypto community. The Fed found that the bank violated various financial regulations, including the Bank Secrecy Act, Anti-Money Laundering laws, and Office of Foreign Assets Control (OFAC) regulations due to its involvement with digital assets. As a result, Customers Bank has been mandated to enhance its oversight, risk management, and compliance measures within a 60-day period.
Gemini co-founder Tyler Winklevoss believes that this regulatory action is a clear indication that Operation Chokepoint 2.0 is still in effect. He argues that the Fed’s decision to require Customers Bank to provide advanced notice before entering into any new banking relationships with crypto companies centralizes decision-making and removes discretion from individual banks. Winklevoss warns that if Vice President Kamala Harris wins the upcoming election and Elizabeth Warren remains a Senator, harsher regulatory actions could be on the horizon.
While regulatory oversight is essential to ensuring the integrity of the financial system, the centralized decision-making process imposed by the Fed raises concerns about the lack of flexibility for individual banks. Winklevoss’s critique of the Fed’s “nice with nerf guns” approach suggests that the current regulatory measures may be just the beginning. The potential for further crackdowns under the Biden-Harris administration could have severe consequences for the crypto industry.
Recommendations for Regulatory Framework
In light of the challenges posed by Operation Chokepoint 2.0 and the potential for stricter regulatory actions, it is crucial for policymakers to consider a principles-based approach to regulation. This approach would allow individual banks to assess the risks associated with banking crypto companies and make informed decisions based on their specific circumstances. By decentralizing decision-making and promoting greater flexibility, regulators can strike a balance between protecting the financial system and fostering innovation within the crypto industry.
The regulatory action taken against Customers Bank highlights the ongoing challenges faced by the crypto industry in navigating a complex regulatory environment. While concerns about Operation Chokepoint 2.0 persist, there is an opportunity for policymakers to reevaluate their approach and ensure that regulatory measures are proportionate and effective in safeguarding the integrity of the financial system.