- U.S. lawmakers are seeking details from Silvergate Bank regarding its ties to FTX and Alameda.
- Silvergate received a similar letter last year but couldn’t provide a satisfactory response.
A group of Bipartisan U.S. Senators have brought Silvergate Bank under the spotlight for its relationship with bankrupt crypto exchange FTX and sister firm Alameda Research.
Senators Elizabeth Warren, John Kennedy, and Roger Marshall sent a strongly worded letter to the bank’s parent firm, Silvergate Capital, seeking clarity on its involvement with Sam Bankman-Fried’s failed crypto empire.
Silvergate’s initial response was unsatisfactory
The letter came less than two months after a similar enquiry was sent to the bank by the Senators in December 2022. The lawmakers were not satisfied with Silvergate’s attempts to hold back details because it was “confidential supervisory information.”
“This is simply not an acceptable rationale,” they stated in response to Silvergate’s evasive and incomplete response.
Noting the bank’s involvement in FTX’s improper use of customer funds, the lawmakers have demanded answers to various questions pertaining to its risk management measures, due diligence process and accountability following the significant lapses.
Regarding Silvergate’s risk management practices, the senators asked the bank to provide specific details about its policies and procedures, what their due diligence revealed, if they ever identified any wrongdoing by FTX and its related entities, and what bank officials did with any such information.
Silvergate’s Chief Risk Officer, Tyler Pearson, was also a point of concern. He was asked why he remained an important part of the risk management team despite the failures with FTX and Alameda. Moreover, he was questioned whether bank executives were held accountable for these failures.
The lawmakers also asked Silvergate about their compliance with the Federal Reserve, the number of exams conducted, and the problems with their due diligence. Additionally, the bank had to answer about independent audits conducted, who conducted these audits, and if any problems were identified. The lawmakers stated that they expected the answers to their queries by 12 February 2023.
Silvergate Bank, based out of California’s tech-hub San Diego, is facing pressure over its involvement with two of the crypto industry’s most prominent companies, FTX and Alameda Research. Silvergate is at the heart of the crypto industry, providing digital financial services to crypto exchanges and other digital businesses.
Recently, Silvergate has come under scrutiny for its dealings with FTX and Alameda. Critics allege that the bank has not been transparent about the exact nature of the relationship and some have voiced concern about potential conflicts of interest.
Silvergate has become a major player in the crypto industry by facilitating investments, providing loans, and helping companies to navigate the challenges associated with compliance and regulation. As a result, Silvergate’s involvement with FTX and Alameda has raised questions about role the banks plays in the industry.
Silvergate has repeatedly stated that it is committed to being a responsible provider of banking services for the crypto industry, and has worked to create regulatory frameworks and safeguards that promote transparency, fairness and integrity. However, the bank is yet to provide a full account of its involvement with FTX and Alameda.
Silvergate is under renewed pressure from members of the crypto community and from regulatory bodies, who are demanding answers and greater clarity with regards to their relationship with the two companies. The SEC, in particular, has asked for more details about the nature of the banks relationship with them, citing concerns about the potential for market manipulation.
At the same time, Silvergate has made efforts to be more transparent and proactive in responding to queries. The bank has recently announced that it is establishing a formal oversight and monitoring framework, in order to ensure that it maintains its commitment to compliance and avoiding any potential manipulation of the crypto market.
The outcome of this situation remains undecided and it is not clear how Silvergate will respond to the renewed calls for clarity. Nevertheless, it appears that the bank is taking steps in the right direction, in order to ensure it remains compliant with the industry regulations and standards.