The Swiss regulatory body has terminated the operation of cryptocurrency linked FlowBank SA
FINMA has lately closed down FlowBank SA, a crypto-linked entity, due to operational deficiencies and bankruptcy.
Switzerland’s financial regulator cited insolvency as the reason for the closure of crypto-linked bank FlowBank SA on Thursday, June 13.
The regulator disclosed well-founded concerns regarding the bank’s financial health, in addition to other factors.
As per the report, the lender is unable to continue its operations as a bank due to a lack of capital. FINMA has expressed grave apprehensions regarding FlowBank’s minimum capital requirements and has suggested that the bank is “over-indebted,” which could render restructuring untenable.
“In the past week, FINMA determined that FlowBank SA’s capitalization is insufficient to support its banking operations.” The minimum capital requirements, which are mandatory at all times, have been materially and severely violated, according to the report.
FlowBank has been on FINMA’s radar since 2021 due to significant violations of supervisory regulations, according to reports. Additionally, the bank failed to satisfy organizational and risk management thresholds and did not satisfy capital requirements. This resulted in FINMA establishing a comprehensive set of regulations that FlowBank would be required to adhere to in order to regain compliance.
FINMA also engaged an independent auditor to oversee its implementation. However, the situation was even more exacerbated by the discovery of inadequacies in the bank’s compliance, which included violations of the capital ratio. The report also references an additional interaction between FINMA and FlowBank in June 2023, during which the regulator appointed an overseer to investigate the bank’s compliance deficiencies.
The results indicated that FlowBank SA consistently violated capital requirements and exhibited a variety of organizational deficiencies. After a week, the regulator resolved the bank’s dissolution in light of these concerns and recent developments. In the end, FlowBank SA and its management entities were unable to restore compliance with the capital requirements in a sustainable manner within the specified timeframe.
“The bank also engaged in a number of high-risk business relationships and executed substantial transactions without conducting a thorough investigation into the underlying circumstances of these relationships and transactions,” FINMA observed.
FlowBank was unavailable for comment at the time of this writing. Already, the organization has terminated its official X account.
In a letter to its clients, FlowBank acknowledged the dissolution and emphasized the revocation of its bank and securities licenses. However, FINMA guarantees that deposits of up to 100,000 Swiss francs (approximately $111,710) are safeguarded for FlowBank customers. The Swiss law firm Walder Wyss AG is responsible for overseeing the bankruptcy liquidation procedure, and refunds will be forthcoming within seven working days.
Regrettably, the fate of customers’ crypto deposits is still uncertain, as it is solely in the hands of Walder Wyss. The liquidator is responsible for determining whether cryptocurrencies will be classified as “claims on the bank,” as per the FINMA. Otherwise, they would be classified as custody assets and, as a result, securities that would be repaid during the bankruptcy process.
“The principal objective of FINMA is to safeguard depositors.” As an initial measure, the liquidator will promptly reimburse the customers in question for deposits of up to CHF 100,000 (privileged deposits). Currently, the bank’s available funds are sufficient to repay the privileged deposits in their entirety. Consequently, we do not anticipate that the Swiss banks’ deposit insurance scheme (esisuisse) will be involved. The regulator also announced that client custody accounts will be segregated from the estate and repaid.
Switzerland’s reputation as one of the most crypto-friendly European countries renders the Swiss regulator’s action unsurprising. AMINA (SEBA), Maerki Baumann, and Swissquote are among the Swiss institutions that facilitate operations involving digital assets. The purpose of shutting down a platform that does not satisfy the operational criteria is to prevent an outcome similar to the FTX implosion, rather than to act against crypto.
