The U.S. crypto industry continues to face regulatory hostility, with the Federal Reserve taking action against Customers Bancorp, a prominent bank providing services to web3 services. The enforcement action, dated Aug. 5 but published on Aug. 8, alleges that the risk management and anti-money laundering processes of Customers Bancorp and its subsidiary, Customers Bank, exhibit “significant deficiencies.” Responding to the action, Customers Bancorp agreed to appoint qualified Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance officers, overhaul its BSA and AML procedures, strengthen board oversight, and provide 30 days notice to the Federal Reserve of any new products, services, or initiatives relating to digital assets. An independent third-party consultant will also review the bank's transaction monitoring from March 1, 2023, through August 31, 2023, to verify that all suspicious activities have been correctly identified and reported. Customers Bancorp provides banking services to many of the largest firms operating in the U.S. crypto industry, including Coinbase, Kraken, Gemini, Circle, and Galaxy Digital. The company also operates the Customers Bank Instant Token (CBIT), a blockchain-based payment solution allowing clients to make real-time tokenized USD payments. “Customers was one of the biggest pro-crypto banks out there,”tweeted Nic Carter, general partner at Castle Island Ventures. “Fed and FDIC are systematically dismantling all crypto-friendly banks one after the next.” The price of Customers Bancorp shares is down nearly 17% since the action's announcement. Operation Choke Point 2.0 Crypto industry representatives described the action as an example of "Operation Choke Point 2.0" — a suspected coordinated effort by U.S. regulatory agencies to isolate the crypto industry from the traditional banking sector. The term invokes Operation Choke Point, a controversial initiative launched by the U.S. Department of Justice (DoJ) in 2013. The campaign sought to prevent fraud by cutting off access to banking services for industries deemed at "high risk" of fostering illegal activities, such as payday lenders, firearms dealers, online gambling, and pornography. The DoJ collaborated with other financial regulators to pressure banks to scrutinize or terminate their relationships with said businesses to limit their access to the financial system. However, Operation Choke Point faced significant backlash from industry groups and lawmakers, leading to its eventual termination in 2017. In February 2023, Nic Carter coined the term Operation Choke Point 2.0 in response to increasing efforts from U.S. regulators to crack down on financial institutions servicing cryptocurrency firms. "The Fed confirmed that Operation Choke Point 2.0 remains in full swing, provided valuable insight into how it works, and verified that the Harris crypto 'reset' is a scam,”tweeted Tyler Winklevoss, the co-founder of Gemini, a cryptocurrency exchange. "Chokepoint 2.0 is still White House policy," Matthew Sigel, head of digital asset research at VanEck tweeted. "[Customers Bancorp] has been among the most aggressive in banking crypto funds & projects.” Orchestrated attack In December 2022, Senators Elizabeth Warren, John Kennedy, and Roger Marshall sent a letter to Silvergate Bank criticizing the firm for providing services to FTX and Alameda Research and failing to report any suspicious activities concerning said clients. One day later, Signature Bank announced it would halve its deposits from crypto clients, with total deposits falling from $23 billion to $10 billion. Additionally, Signature announced plans to exit its stablecoin business. In January 2023, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency published a joint statement warning of the risks associated with banking crypto firms. The Federal Reserve followed up with a statement discouraging banks from holding cryptocurrencies or issuing stablecoins. Less than one week later, Metropolitan Commercial Bank announced it was shutting down its crypto-related vertical. Applications from Custodia, a digital asset custodian describing itself as “a compliant bridge between digital assets and the U.S. dollar payments system,” to join the Federal Reserve system and obtain a master account were also rejected in January 2023. The Department of Justice also launched an investigation into Silvergate in February 2023. Silvergate shut down one month later after announcing it was undercapitalized. Its collapse came within one week of Signature and Silicon Valley Bank similarly failing, leaving few U.S. financial institutions willing to provide banking services to crypto firms.