As a partner of stablecoin TrueUSD (TUSD) and exchange platform Binance, the Swiss Financial Market Supervisory Authority (FINMA) forced encrypted bank FlowBank into bankruptcy proceedings yesterday (13), citing serious violations of the minimum capital standards required for operating a bank, excessive debt, and almost no possibility of restructuring.
FINMA highlighted in its latest statement that it initiated bankruptcy proceedings for encrypted bank FlowBank on June 13, stating that the bank no longer had sufficient funds to maintain its operations.
FINMA stated that FlowBank could not afford the funds required for its business operations and had no prospect of restructuring, expressing concerns that the bank may be unable to meet its obligations.
FlowBank was found to have seriously violated regulatory requirements, particularly in terms of capital requirements, organizational structure, and risk management.
The regulatory authority implied that the bank’s involvement in cryptocurrency business may have contributed to its bankruptcy, as it established many high-risk business relationships without a comprehensive assessment and processed large transactions.
FlowBank, with approximately $760 million in assets and over 22,000 users, has stated on its official website that users with deposits below 100,000 Swiss francs (approximately $111,000) will be protected and repaid within 7 working days.
FINMA also emphasized in its statement that the bank’s existing funds will be fully reimbursed to the mentioned users, and therefore, the Swiss Bank Deposit Insurance Scheme (esisuisse) will not be involved in assistance.
However, concerns have been raised regarding the difficulty of repaying some users’ encrypted assets, as FINMA claimed that whether cryptocurrencies can be treated as custodial assets subject to bankruptcy proceedings will depend on the liquidator.
FlowBank, established in 2020, was listed by FINMA for observation a year later due to violations of regulatory requirements and operation of high-risk businesses. The bank’s license was eventually revoked in March this year, leading to the bankruptcy news.
It remains uncertain whether cryptocurrency truly poses the so-called “high-risk business” or if improper portfolio allocation and changes in interest rate policies could lead to financial crises for traditional banks, encrypted banks, or exchanges.
In March last year, the United States faced the collapse of three banks – Silvergate, Silicon Valley Bank (SVB), and Signature Bank – within a month, indicating that improper asset management in traditional finance could still result in liquidity issues or bankruptcy risks.