Swiss crypto-friendly bank FlowBank forced into bankruptcy due to serious breaches

The Swiss Financial Market Supervisory Authority (FINMA) announced that it has forced crypto-friendly online banks doing business with TrueUSD stablecoin issuer Techteryx, crypto asset management company CoinShares and the world’s largest cryptocurrency exchange Binance after discovering major violations. FlowBank goes bankrupt.

FINMA finds FlowBank in serious breach of capital adequacy requirements

FINMA pointed out in a statement on June 13 that FlowBank no longer had the minimum capital required for business operations, and there was no possibility of restructuring. There were concerns about the bank's over-indebtedness, so it took closure measures.

Previously, FINMA found in its investigation that FlowBank had seriously breached its obligation to hold adequate capital and concluded that the bank must be liquidated.

Source: Yves Genier

Founded in 2020, FlowBank provides cryptocurrency trading services and is a banking partner of Techteryx, the stablecoin issuer behind TrueUSD. CoinShares owns part of FlowBank, which also provides banking services to Binance.

FINMA protects customer assets and promises to assist in fund recovery

FINMA emphasized that customers with funds not exceeding 100,000 Swiss francs (approximately US$111,710) will be protected first, and the regulator will be committed to helping customers recover these funds as soon as possible.

It is reported that FlowBank has total assets of 680 million Swiss francs (approximately US$760 million), manages more than 22,000 customer accounts, and has approximately 140 employees worldwide.

FlowBank has a long history of compliance issues

One year after its launch, in October 2021, FlowBank was subject to enforcement action for the first time because FINMA found serious violations of regulatory laws, especially with regard to capital requirements. Twelve months later, independent auditors were appointed to monitor FlowBank's return to compliance.

In June 2023, as more questions emerged, FINMA appointed another supervisor to oversee FlowBank’s financial activities and further investigate its compliance failures. The investigation uncovered a number of high-risk business relationships and a number of large transactions that were processed without proper due diligence.

At the same time, FINMA ordered the revocation of FlowBank’s banking license on March 8, 2024, but the ruling has not yet taken effect because FlowBank is still awaiting the outcome of the appeal from the Federal Administrative Court.

Conclusion:

FlowBank’s bankruptcy highlights the strict regulatory requirements that financial institutions must adhere to even in crypto-friendly Switzerland. FINMA’s decisive action protects clients’ interests and underlines the importance of compliance in the financial industry.

As cryptocurrencies and traditional finance converge, regulators and market participants alike will need to increase their focus on risk management and compliance.

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