FINMA Orders Closure of FlowBank; Crypto Deposits’ Future Uncertain

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The Essentials in Brief

The Swiss Financial Market Supervisory Authority FINMA has ordered the closure of FlowBank, linked with cryptocurrencies, and initiated the start of bankruptcy proceedings. This decision follows the finding that the bank has “significantly and seriously” violated the minimum capital requirements. Protection is in place for customers with deposits up to 100,000 Swiss francs, which provides for a refund within seven business days. However, the future of the crypto deposits remains uncertain.

FINMA Closes FlowBank Due to Capital Shortfalls

The Swiss Financial Market Supervisory Authority (FINMA) has closed the online bank FlowBank, which offered its customers access to cryptocurrencies, and initiated bankruptcy proceedings. The authority stated that the bank did not have sufficient capital for operation and the minimum capital requirements were significantly and seriously violated. Furthermore, there are justified concerns that the bank is currently over-indebted, with no prospect of restructuring.

FlowBank’s Connections to the Crypto Market

FlowBank was founded in 2020 and had extensive connections to the crypto market. Among other things, the crypto-asset manager CoinShares acquired a 9% stake in the bank for $11.8 million in 2021. After this investment, FlowBank began offering its customers the purchase, sale, and storage of cryptocurrencies and other tokenized assets directly via their FlowBank accounts. It was also reported that Binance, the world’s largest crypto exchange, would allow larger traders to hold their crypto assets at FlowBank or Sygnum, another crypto-friendly Swiss bank.

Protection of Customer Deposits and Uncertain Future of Crypto Deposits

According to FINMA, customer deposits up to 100,000 Swiss francs (approximately $111,710) are protected and will be refunded within seven business days. However, the treatment of the crypto deposits in the bankruptcy proceedings is less clear. It is at the discretion of the liquidator whether the cryptocurrencies are classified as custodial assets, which are treated like securities in bankruptcy proceedings, or whether they are considered “claims on the bank”.

Our Assessment

The closure of FlowBank underscores the importance of strict capital requirements and sound financial practices for banks operating in the crypto sector. For customers who invest in cryptocurrencies or hold such assets, it is a wake-up call to closely examine the financial stability and regulatory compliance of the involved institutions. The future of the crypto deposits at FlowBank remains uncertain, and this case could have far-reaching implications for the regulation and trust in crypto-friendly banks.

Sources:
– Cheyenne Ligon
– Walder Wyss

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