The Swiss Financial Market Supervisory Authority (FINMA) has ordered the closure of FlowBank, an online bank specializing in crypto assets, due to insolvency. The bank's lack of proper capital and significant debt led to the decision. Deposits up to 100,000 Swiss francs are guaranteed, but the future of crypto assets remains uncertain.

FlowBank, established in 2020, was known for its strong connections to the crypto industry. In 2021, CoinShares acquired a 9% stake in the bank for $11.8 million, allowing customers to buy, sell, and hold cryptocurrencies through their accounts. This integration made FlowBank a leading crypto bank. In the first quarter of the year, Binance, the world's largest cryptocurrency exchange, partnered with FlowBank, allowing institutional clients to store digital assets with the bank.

However, the closure has significant implications for the future of crypto-friendly banks and partnerships. The announcement by FINMA is somewhat reassuring for customers with conventional deposits, as they will receive their money back within a week. However, the fate of crypto deposits is less clear. According to FINMA, it is the liquidator's responsibility to determine whether these cryptocurrencies are custody assets or claims on the bank.

The distinction is crucial. If classified as custody assets, cryptocurrencies will be treated like securities in bankruptcy, providing better protection for crypto holders. On the other hand, if treated as claims on the bank, the recovery of these assets might be more complex. This uncertainty is a significant concern for customers who have leveraged FlowBank's crypto services.

The closure of FlowBank comes amid changes within FINMA's leadership. Earlier this year, FINMA appointed Stefan Walter, a former European Central Bank (ECB) chief, as its new CEO, effective April 1, 2024. This decision followed the resignation of the previous CEO, Urban Angehrn, who left last year due to health reasons. The leadership transition at FINMA signals a potentially new regulatory approach in the Swiss financial sector.