Crypto-linked bank FlowBank SA shut down on Thursday, June 13, with Switzerland’s financial regulator citing bankruptcy.
Among other reasons, the regulator revealed well-founded concerns about the bank’s financial health.
Switzerland’s FlowBank Shuts Down
The Swiss Financial Market Supervisory Authority (FINMA) has closed the crypto-linked bank FlowBank SA, citing financial reasons. According to the report, the lender does not have enough capital to continue operating as a bank. FINMA expresses serious concerns about FlowBank’s minimum capital requirements and indicates that the bank is “over-indebted,” making restructuring potentially impossible.
“FINMA established in the last week that FlowBank SA no longer has sufficient capital for its operations as a bank. The minimum capital requirements, which must be met at all times, have been significantly and seriously breached,” said the report.
Reportedly, FINMA has had FlowBank on its watchlist since 2021 amid serious breaches of supervisory regulations. The bank fell short of capital requirements and did not meet organization and risk management thresholds. With this, FINMA had drawn extensive measures that FlowBank would have to follow to restore compliance.
FINMA also brought in an independent auditor to monitor its implementation. Nevertheless, findings of inadequacies in the bank’s compliance further worsened the situation, including breaches of the capital ratio. The report also cites another engagement between FINMA and FlowBank in June 2023, where the regulator appointed an overseer over the bank’s activities to probe its compliance failures.
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The findings revealed that FlowBank SA repeatedly violated capital requirements and exhibited multiple organizational deficiencies. These issues, along with recent developments, led to the regulator’s decision to dissolve the bank after a week. Ultimately, FlowBank SA and its management bodies failed to sustainably restore compliance with the capital requirements within the required timeframe.
“The bank also entered into numerous higher-risk business relationships and processed large transactions without properly investigating the background of these business relationships and transactions,” FINMA noted.
At the time of writing, FlowBank was unavailable for comment. The company has already deactivated its official X account.
Letter To FlowBank Customers
FlowBank acknowledged the dissolution in a letter to its clients, highlighting the revocation of its license as bank and securities. Nevertheless, FINMA assures FlowBank customers that deposits up to 100,000 Swiss francs (nearly $111,710) are protected. Refunds will happen within seven working days, where Swiss law firm Walder Wyss AG oversees the bankruptcy liquidation process.
Unfortunately, the fate of customers’ crypto deposits remains unclear, entirely in Walder Wyss’s hands. According to the FINMA, the liquidator is tasked with determining whether cryptocurrencies will be treated as “claims on the bank.” Otherwise, they would pass as custody assets and, therefore, securities in the bankruptcy process to be repaid.
“FINMA’s primary aim is to protect depositors. In a first step the liquidator will therefore repay deposits up to CHF 100,000 (privileged deposits) to the clients concerned as quickly as possible. According to current calculations, the privileged deposits can be repaid in full out of the bank’s available funds. Therefore, we do not expect the Swiss banks’ deposit insurance scheme (esisuisse) to be involved. Client custody accounts will also be segregated from the estate and repaid,” the regulator stated.
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The Swiss regulator’s action is unsurprising, given Switzerland’s reputation as one of the most crypto-friendly European countries. Several Swiss banks, including AMINA (SEBA), Maerki Baumann, and Swissquote, support operations with digital assets. Shutting down a platform that fails to meet operating criteria aims to prevent an outcome similar to the FTX implosion rather than acting against crypto.
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