Report: Feds Probed Signature Bank Money Laundering Controls

Signature Bank was reportedly the target of a criminal investigation prior to its downfall.

Federal authorities were examining the bank’s relationships with its crypto clients, Bloomberg News reported Tuesday (March 14), citing people familiar with the matter. The news comes as regulators are considering tougher rules for mid-sized banks following the recent collapse of Signature and two other banks.

According to the Bloomberg report, the U.S. Justice Department (DOJ) is investigating whether Signature took proper measures to sniff out money laundering by its clients. The Securities and Exchange Commission (SEC) is reportedly also involved.

This news follows earlier reports that both the DOJ and SEC were investigating the failure of another lender, Silicon Valley Bank (SVB), which was taken over by regulators just two days before Signature Bank folded on Sunday (March 12).

A joint action by the Federal Reserve and Treasury Department, announced Sunday (March 12), took the unusual step of designating both banks a systemic risk to the financial system, which gives regulators room to safeguard uninsured deposits and stave off as much of the financial damage as possible.

As noted here Tuesday, the DOJ and SEC are running their own probes into the collapse of the bank and stock sales made by two executives of its parent company, SVB Financial Group.

PYMNTS has reached out to both agencies for comment but has not yet received a reply. However, SEC Chair Gary Gensler issued a statement Sunday discussing the commission’s focus on prosecuting financial misconduct.

“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” Gensler said.

Meanwhile, a report Tuesday evening by The Wall Street Journal says that the Federal Reserve is reexamining its rules for mid-sized banks in the aftermath of the SVB and Signature failures.

According to the report, the change could extend restrictions that now apply only to major Wall Street lenders. The Fed could also toughen up the yearly  “stress tests” that look at whether banks can handle a recession, the report said, citing a person with knowledge of the matter.

FinTechs and other businesses will be doing more due diligence of their own in the wake of these banking failures, Charlie Youakim, CEO of the payments firm Sezzle, told PYMNTS’ Karen Webster in a recent interview.

“We’ve got a board meeting later this week to go over the set of banks that [Sezzle] works with,” he said. “We’re putting together a report of what these banks look like, their financial stability…because it’s not the case anymore that you can just trust your bank, trust that your money will be safe.”

And while regulators have backstopped deposits, Youakim said there’s still “more than a little bit” of concern at the moment.

“Last weekend felt like the wild, wild West,” Youakim said. “SVB had been around forever, they had a great brand. [Its failure] is a big shock to me.”