The crypto industry has often come under criticism for fostering a culture of crime and fraudulent activity, with skeptics alleging that the lack of regulatory oversight allows for these offenses to occur. Signature Bank, one of the largest banks in New York, has been at the forefront of the crypto space, implementing blockchain technology and offering services to digital asset companies. However, in a recent interview with CoinDesk, Linda Lacewell, the Superintendent of the New York State Department of Financial Services (NYDFS), debunked the notion that crypto had anything to do with SBNY’s regulatory issues.
In the interview, Lacewell stated that Signature Bank’s compliance issues were “primarily driven by traditional banking activities.” She continued by saying that the bank’s issues stemmed from its dealings with the Paycheck Protection Program (PPP), a government initiative aimed at helping small businesses affected by the COVID-19 pandemic. Signature Bank had approved numerous applications for PPP loans, some of which provided erroneous information or failed to meet the program’s requirements. The bank had paid out around $740 million in PPP loans before the NYDFS raised concerns.
According to Lacewell, the NYDFS began an investigation into SBNY’s PPP loans and found violations that warranted monetary penalties. The regulator issued a consent order that required the bank to pay a $15 million fine and hire an independent consultant to review its compliance policies and procedures. Additionally, Signature Bank was required to strengthen its compliance program and implement an enhanced risk management framework. It was found that these deficiencies were mainly operational in nature and did not signal the presence of significant systemic deficiencies.
CoinDesk reports that one of the key areas of concern for the NYDFS was the bank’s internal controls, which did not adequately address the risks associated with PPP lending. Signature Bank was found to have deficient procedures in place for verifying the eligibility of PPP loan applicants, assessing creditworthiness, and properly documenting its decision-making processes.
Lacewell emphasized that while the penalties levied against Signature Bank were significant, the bank was not at risk of losing its license or facing other severe regulatory consequences. She explained that the NYDFS’s approach to enforcement is based on a “risk-based strategy,” which takes into account the overall safety and soundness of a financial institution. The penalties were intended to protect consumers, prevent future compliance violations, and ensure that the bank had robust compliance policies and procedures in place.
Despite the compliance issues, Signature Bank’s CFO, Eric Howell, has acknowledged that the bank’s foray into the crypto industry was positive. The bank’s blockchain-based platform, Signet, which was launched in 2019, has been embraced by many of the industry’s major players. The platform allows for near-instantaneous transactions and has attracted clients such as BitPay, Paxos, and Gemini. The platform has processed over $10 billion in transactions since its launch.
Howell affirmed in a statement that Signet’s growth has been a “significant contributor to the bank’s overall success,” which saw its deposits increase by $10.7 billion in the second quarter of 2021. He added that Signature Bank remained committed to supporting the digital asset industry and planned to expand its offerings to meet clients’ needs.
In conclusion, Linda Lacewell’s comments clarify the reasons behind the NYDFS’s actions against Signature Bank, emphasizing that the issues were linked to traditional banking practices rather than the bank’s involvement in the crypto space. Signature Bank has emerged as a crypto-friendly institution, having recognized early on the potential benefits of blockchain technology. The bank’s blockchain-based platform, Signet, has been welcomed by the crypto industry, and despite the recent regulatory fines, the bank remains committed to offering services to digital asset companies.