As a partner of stablecoin TrueUSD (TUSD) and exchange Binance, the Swiss Financial Market Supervisory Authority (FINMA) forced the encrypted bank FlowBank into bankruptcy proceedings yesterday (13), stating that it seriously violated the minimum capital standards required for operating a bank, was excessively indebted, and had almost no possibility of restructuring.
FlowBank Closed by Swiss Financial Market Supervisory Authority: High-Risk Business Troubles
Priority repayment for users with deposits below 100,000 Swiss francs, what about cryptocurrencies?
Always a partner of TUSD and Binance
Are cryptocurrencies really causing trouble?
In its latest statement, FINMA indicated that it had forced the bankruptcy proceedings of the encrypted bank FlowBank on June 13, stating that it did not have sufficient funds to continue operating the bank.
FINMA stated that FlowBank could not afford the funds required for its business operations and had no prospect of restructuring, further expressing concern that the bank might become insolvent:
We found that FlowBank seriously violated regulatory requirements, especially in terms of capital requirements, organizational structure, and risk management.
Among these statements, FINMA seemed to be indirectly referring to the cryptocurrency business the company had undertaken:
The bank established many high-risk business relationships and handled large transactions without a comprehensive assessment.
FlowBank reportedly held around $7.6 billion in assets and had over 22,000 users.
Additionally, on its official website, FlowBank stated that users with deposits below 100,000 Swiss francs (approximately $111,000) would be protected and would be repaid within 7 working days.
FINMA also emphasized in its statement that the existing funds of the bank would be fully reimbursed to the above-mentioned users, so the Swiss Bank Deposit Insurance Scheme (esisuisse) would not be involved in assisting.
However, some are concerned that the liquidation of cryptocurrency assets for some users may become very difficult:
FINMA claims that whether cryptocurrencies can be considered as custodial assets handled like securities, and whether they are classified in bankruptcy proceedings, depends on the liquidator.
As a bank heavily invested by the cryptocurrency asset management company CoinShares, FlowBank has been providing cryptocurrency trading services for years.
The bank is known to be a partner bank of the controversial stablecoin TrueUSD (TUSD) issuer Techteryx, and reportedly provides custody services for cryptocurrencies to Binance.
Established in 2020, FlowBank was put on FINMA’s watch list a year later, citing violations of regulatory requirements and operating many high-risk businesses. The institution appointed an independent auditor to monitor its compliance processes and financial activities, but violations were repeatedly found in the past two years.
It was not until March of this year that FINMA finally ordered the revocation of FlowBank’s license, but news of bankruptcy surfaced during the waiting period for the decision to take effect.
However, is it really the so-called “high-risk business” of cryptocurrencies that is causing trouble? Perhaps, in essence, it is not incorrect regarding financial products, but improper portfolio allocation and changes in interest rate policies may 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, showing that if traditional financial institutions do not handle asset management properly, there is still a risk of a run on banks or bankruptcy.
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