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Adrienne A. Harris – Superintendent of the New York State Department of Financial Services (NYDFS) – said the premise that the bank’s ties to crypto-related businesses were behind its closure is “ludicrous.”
The financial institution revealed severe operational difficulties last month and was shut down by American regulators to prevent further issues.
Crypto Was not the Reason
The head of the NYDFS assured in a recent interview that the relevant watchdogs closed Signature Bank because it had multiple uninsured deposits and lacked liquidity management protocols to honor withdrawal requests.
As such, she completely scrapped the assumption that the organization’s relation to the crypto industry had anything to do with its failure:
“The idea that the taking possession of Signature was about crypto and this is ‘Choke Point 2.0’ is really ludicrous.”
On the other hand, the NYDFS has previously urged companies to separate customers’ cryptocurrency holdings from their own assets, as co-mingling could cause a substantial financial loss for investors.
“Further, the department expects a VCE Custodian to make its standard disclosures and customer agreement readily accessible to customers on its website, in a manner consistent with New York laws and regulations,” the watchdog added.
Harris spoke in detail about the cryptocurrency sector, arguing it still lacks maturity despite its growing popularity. She said her team found that the compliance programs of numerous firms in the field consisted of “reams of paper” and Excel spreadsheets:
“There is still a lack of maturity around Bank Secrecy Act-anti-money-laundering [compliance] and cybersecurity. We’re eager for the day when those systems mature and scale as the business side does.”
She opined that such companies need to employ the right technology, including blockchain analytics tools, and hire trained staff to operate them.
The Affected Entities From Signature’s Collapse
The closure triggered multi-million losses for many crypto-focused firms since they had exposure to the bank. The US-based exchange Coinbase held $240 million in corporate cash at Signature, while the blockchain infrastructure platform – Paxos – had $250 million stuck.
The bankrupt crypto lender – Celsius Network – is next on the list. The committee of unsecured creditors stated all depositors will be “made whole.”
Featured image courtesy of Bloomberg
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