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Government missed red flag before Signature closure, says OBA

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Big-city bank: Signature Bank's corporate headquarters at 565 Fifth Avenue in New York (Photograph by Google Street View)

The Government tonight said that Bermuda-licensed digital asset companies that were customers of a New York bank shut down by regulators on Sunday were still able to carry on business with a bridge bank set up by a US federal agency.

Signature Bank was shut down by New York state regulators on Sunday, only two days after the collapse of Silicon Valley Bank in California. Both banks had exposure to fintech and crypto currency developers and were the second and third largest bank failures in US history.

Tonight a Government spokeswoman pointed The Royal Gazette to the announcement that in the wake of the closure, the US Federal Deposit Insurance Corporation had set up Signature Bridge Bank and appointed a new CEO to manage all of Signature’s deposits and most of its assets. The US Government also said that all customer deposits would be safe.

In 2019, the Bermuda Government had endorsed Signature Bank as a bank for Bermuda-licensed digital asset companies when they had difficulty securing banking services from Bermuda banks. It is not known how many Bermuda digital asset companies are customers of Signature or the scale of their deposits or loans.

Tonight a government spokesman said: “The Government continues to monitor the developments taking place in the financial markets in the US. We remain in close contact with the BMA, our financial services regulator, to keep abreast of any matters which may require the Ministry of Finance’s attention.

“Bermuda remains committed to a high level of compliance with international standards and strong and robust regulatory requirements. These requirements continue to be applied to all areas of financial services consistent with our reputations as a quality international financial centre.”

But the collapse of the two US banks has raised doubts about the viability of the fintech sector, which was rocked late last year by the collapse of Bahamas-based FTX .

Cole Simons Opposition Leader (Photograph by Blaire Simmons)

Cole Simons, the Opposition leader, said earlier today that an announcement by Signature Bank in December that it planned to shrink its crypto-related deposits by $8 billion should have been a “red flag” to the Government.

He said: “What a blow to Premier’s Burt‘s emerging fintech and digital asset industry.

“What will be the impact for the reputation of Bermuda Inc, as the Government has reportedly been working diligently to promote Bermuda as the destination of choice for fintech companies looking for a place to domicile?”

He added: “Now that this banking option is off the table, what’s next for Bermuda’s emerging digital asset and crypto currency industry?

“Did our government perform adequate due diligence before they entered the relationship with Signature Bank?

“Were they providing any ongoing monitoring and due diligence since the start of the relationship?

“Did Bermuda’s regulators perform their ongoing enhanced due diligence with the New York State financial service regulators?

“If they did, were they aware that as of September, almost a quarter of its deposits came from the cryptocurrency, and that the bank announced in December that it would shrink its crypto-related deposits by $8 billion?

”This should have been a red flag.

“Again, this mega bank failure is extremely alarming and has the real potential of compromising Bermuda's blue chip financial services jurisdictional reputation.”

The Royal Gazette put questions to the Government earlier today given that it had endorsed the bank’s services in 2019.

The Government said then that Signature Bank “has agreed to provide a full range of banking services” to Bermuda’s fintech industry.

The Government’s 2019 statement said: “Bermuda can now offer an option for US banking services to Bermuda-licensed fintech companies.

“Signature Bank, a New York-based full-service commercial bank, has agreed to provide a full range of banking services to companies that meet Bermuda and Signature Bank standards.”

The statement quoted Premier Burt as saying: “Signature Bank’s willingness to consider Bermuda- licensed businesses for banking services is a significant vote of confidence in and endorsement of Bermuda’s efforts to create a leading high-standard regulatory regime for fintech business.

“Bermuda is setting itself apart by providing regulatory certainty combined with a world-renowned reputation for transparency and the highest standards of global compliance.

“Signature Bank’s endorsement showcases how Bermuda is competitively placed to advance the pace of the digitisation of global commerce as modern technology is applied to the highly regulated world of finance.”

The press release on the government website said the Government’s Fintech Business Unit could assist companies with applying for accounts with Signature Bank.

The Gazette asked today how many Bermuda-licensed companies were affected by Signature’s collapse, whether there had been any contact with the bank by the Government and what effect, if any, the US banking crisis had had on Bermuda-licensed digital bank Jewel Bank.

None of those questions were specifically answered last night.

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Published March 14, 2023 at 7:55 am (Updated March 14, 2023 at 7:55 am)

Government missed red flag before Signature closure, says OBA

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