- Coinbase Group subsidiary CB Payments Limited (CBPL) has been fined $4.5 million by the FCA for soliciting high-risk customers.
- The breach occurred despite an agreement to stop boarding high-risk customers in 2020.
- This action marks the FCA’s first against a cryptocurrency company under the 2011 Electronic Money Regulations.
The UK’s Financial Conduct Authority (FCA) has taken a landmark decision, fining Coinbase’s UK subsidiary CB Payments Limited (CBPL) £3.5 million ($4.5 million) for repeatedly breaching anti-money laundering regulations.
This is the first action taken by the FCA against a cryptocurrency company under the Electronic Money Regulations 2011.
CBPL has agreed with FCA to not carry high-risk customers.
In October 2020, CB Payments Limited (CBPL), part of Coinbase Group, entered into a voluntary agreement with the FCA to stop onboarding high-risk customers.
The agreement aims to strengthen financial crime controls at a company that the FCA says has serious vulnerabilities.
However, despite the restrictions, CBPL onboarded 13,416 high-risk customers who deposited approximately $24.9 million, which was used to make withdrawals and cryptocurrency transactions worth $226 million through other Coinbase entities.
The FCA investigation found that CBPL failed to exercise reasonable skill, care and diligence in designing, testing, implementing and monitoring controls to comply with the Voluntary Requirements (VREQ).
The company failed to adequately consider all potential customer onboarding methods, resulting in a significant breach that went undetected for nearly two years.
Teresa Chambers, the FCA’s joint executive director for enforcement and market oversight, highlighted the severity of the situation in a statement released on July 25, saying these requirements were necessary because there were serious vulnerabilities in CBPL’s controls that the FCA had pointed out.
According to the statement, however, CBPL has repeatedly violated these requirements, increasing the risk that criminals can use CBPL to launder criminal proceeds. We will not tolerate this laxity that threatens the integrity of our markets.
Coinbase subsidiary gets 30% discount on fines
Coinbase responded to the FCA’s findings, stating that it takes regulatory compliance very seriously and is actively strengthening controls to comply with its regulatory obligations.
The FCA acknowledged CBPL’s cooperation with the investigation and said the company had received a 30 per cent discount on its fine in return for agreeing to resolve the issue early.
Warning on Cryptocurrency Companies Without Financial Crime Controls
The FCA’s move reflects a broader intention to ensure cryptocurrency companies comply with their anti-money laundering obligations.
Kate Gee, a partner and cryptocurrency dispute specialist at Signature Litigation in London, said the CBPL fine should be seen as a wake-up call for companies to take financial crime controls very seriously, especially in the cryptocurrency sector where money laundering risks are high.
It said companies that do not take sufficient safeguards against financial crime and do not comply with the operational restrictions in place will be subject to investigation and enforcement action.
This fine not only highlights the importance of strong financial crime controls, but also suggests that other cryptocurrency exchanges operating in the UK may come under increased scrutiny.
The FCA’s decisive action could lead other platforms to reassess their compliance frameworks to avoid similar penalties.