The Collapse of Signature Bank: Chronic Deficiencies in AML and Sanctions Compliance

The Federal Deposit Insurance Corp. (FDIC) disclosed that it was preparing a consent order against Signature Bank for “apparent violations” of US sanctions and anti-money laundering (AML) rules before the Manhattan-headquartered lender permanently closed down in March. Signature was previously the 29th-largest bank in the US but suffered a massive outflow of deposits after the collapse of San Diego-based Silvergate Bank and the seizure of Silicon Valley Bank. The bank faced high exposure to turmoil from digital assets-related firms, which accounted for 20% of the bank’s $88.6 billion in deposits at the end of last year. The lion’s share of Signature’s deposits exceeded the FDIC’s $250,000 insurance limit, which triggered a liquidity crisis when clients began withdrawing their money in bulk.

The FDIC published a 62-page analysis on April 28 that focuses on the missteps that allowed Signature to accrue so much liquidity-related risk unchecked and ultimately lead to the bank’s demise. The analysis also references chronic deficiencies in Signature’s AML and counterterrorist financing controls, and weaknesses in complying with US sanctions. No fewer than eight of the 13 total “matters requiring board attention,” or MRBAs, that surfaced during federal examinations of Signature in 2022 flagged shortcomings with the lender’s AML program, according to the FDIC. Corporate governance and liquidity risk issues at Signature accounted for two MRBAs apiece last year, while problems with the lender’s “fund banking division” accounted for the remaining one.

The FDIC disclosed that it was considering pursuing “a formal consent order related to AML/CFT and OFAC weaknesses and apparent violations” due to weaknesses emerging from the 2022 targeted reviews. The FDIC also pursued “an informal enforcement action” against Signature in 2016 “related to [Bank Secrecy Act]/AML internal-control weaknesses,” but closed the book on the matter in June 2018 after determining that the bank had addressed the issues.

On March 14, two days after the collapse, Bloomberg reported that the Justice Department and Securities and Exchange Commission had launched parallel investigations into suspected AML breaches at Signature that involved some of the bank’s dealings with the cryptocurrency sector. Whether those gaps involved Signature’s ties to cryptocurrency exchanges, stablecoin issuers, and other virtual asset service platforms remains unclear, but the analysis suggests they may have played some role in the bank’s eventual unraveling.

Signature’s executives displayed a dismissive attitude towards warnings about the bank’s AML-related flaws and other problems, according to the FDIC. They sometimes appeared “disengaged from the examination process and generally dismissive of examination findings.” The regulator concluded that “[management’s] primary focus on growth, deposits, and profits took priority over the responsibility to ensure sound risk management and responsiveness to SRs [supervisory recommendations].”

DFS seized the bank on March 12 and appointed the FDIC as the receiver. Along with the release of the FDIC’s analysis on April 28, DFS published findings from its own review of Signature’s supervision and closure. The Federal Reserve published a 118-page report on the collapse of Silicon Valley Bank, previously the 16th-largest lender in the US.