The Financial Conduct Authority (FCA) has fined Coinbase’s UK subsidiary – CB Payments Limited – a penalty of $4.5 million for breaking a voluntary agreement to prevent high-risk customers from boarding. The FCA has highlighted serious problems with CBPL’s control systems.
Coinbase has crossed the line
In October 2020, CBPL entered into a voluntary agreement with the FCA to limit the onboarding of new customers deemed “high risk” by the regulator. This agreement was aimed at reducing potential criminal activity on the CBPL platform, thereby preserving market integrity and reducing money laundering risks.
Despite these protections, the FCA found that CBPL had clearly violated the agreement by onboarding and servicing 13,416 high-risk customers. The FCA’s deputy executive director of enforcement and market surveillance, Therese Chambers, criticised CBPL’s management for its notable lack of oversight.
“CBPL’s controls had significant flaws,” Chambers said, “which the FCA had already noted and which led to the FCA “The implementation of these requirements was a mistake.” Yet the CBPL has consistently violated these rules.
According to the FCA’s investigation, these compliance failures increased the risk of criminal activity by CBPL, including money laundering. The FCA has therefore imposed a $4.5 million fine to underline its zero-tolerance approach to regulatory breaches that jeopardise market integrity.
The first such sanction, according to crypto litigation attorney Kate Gee of Signature Litigation, was a message for companies to take financial crime management seriously.
Companies that fail to comply with existing operating limits or do not do enough to protect themselves against financial crime will face scrutiny and enforcement action, Gee warned.
Impact on actions
The harsh sanctions dealt a major blow to Coinbase’s stock, with shares of the company falling nearly 2% after the news.
At the time of pre-market trading on Thursday, July 25, the price was $240.30.
CBPL Response
In response to the FCA findings, Coinbase said it was committed to complying with regulations and acknowledged the breaches. Coinbase said in a statement that CBPL continues to continually improve its control systems to meet legal requirements, and that the FCA also acknowledged CBPL’s assistance with the investigations.
The exchange explained that only 0.3% of all new customers from October 30, 2020 to October 1, 2023 were high-risk, meaning their onboarding was accidental. Coinbase stressed its seriousness about the FCA’s findings and its continued efforts to strengthen control systems to prevent further breaches.
Investors and the cryptocurrency market will be closely watching Coinbase’s attempts to address compliance issues to see how the company maintains its commitment to regulatory standards and improves its control systems.
Featured image from Reddit, chart from TradingView
