In what has been a challenging year for traditional banks, the Federal Deposit Insurance Corporation (FDIC) seems to be increasing its scrutiny of crypto-friendly banks. The Institution sent a cease-and-desist order to Cross River Bank to “self-correct” and properly address the vulnerabilities in its lending operations 

The regulator requested that the bank implement greater oversight and control through a consent agreement (consent order).

FDIC Alleges Bank Engaged In Unsafe Or Unsound Practices

On Friday, 28th April, the FDIC released a consent order executed by Cross River Bank back in March. The financial institution – well-known for its services to various fintech and cryptocurrency companies – was accused of engaging in “unsafe or unsound banking practices related to its compliance with applicable fair lending laws and regulations”. All of these regulatory breaches were outlined in a 2021 Report of Examination (2021 ROE).

The 34-page consent order document reveals that Cross River Bank failed to establish and maintain internal controls, information systems, and prudent credit underwriting practices. Following the assessment of its current framework, the bank is required to implement processes that will help them avoid the recurrence of these infringements in the future.

Additionally, Cross River is required to tender a fair lending resources study and report by May 7. This report must have been carried out by an independent third party, highlighting the institution’s size, expansion plans, and current and anticipated number of credit products, and their respective volumes.

It is, however, worth noting that Cross River Bank has not admitted or denied any of the FDIC’s allegations. In fact, Cross River’s CEO Gilles Gade issued a statement a day before the regulatory body published the consent order, emphasizing that the bank maintains “the highest levels of compliance” – albeit without mentioning the FDIC allegations.

FDIC Action Not Related To Cryptocurrency Activities

According to a separate Wall Street Journal report, a Cross River spokesperson said the FDIC action has nothing to do with the bank’s cryptocurrency or payments business activities. Instead, it is related to a review of its lending practices in 2021.

As mentioned earlier, Cross River is known for its services to various crypto organizations, including prominent exchange Coinbase and USDC issuer Circle. Interestingly, the consent order was executed only days before securing its partnership with Circle in March.

That said, given the recent collapses of crypto-related banks Silvergate and Silicon Valley, Cross River may want to tread carefully when it comes to any type of controversy. Increasing supervision and oversight over its system of internal controls and other components, as ordered in the consent agreement, is a great place to start.