Coinbase UK Unit Fined for Breaching Financial Crime Requirements
In a landmark regulatory action, the UK branch of Coinbase, a major cryptocurrency exchange, has been fined for failing to adhere to mandated improvements in its financial crime controls. This fine marks the first of its kind in the UK's cryptoassets sector, highlighting the increasing scrutiny on financial practices within the industry.
Background of the Case
The Financial Conduct Authority (FCA) revealed that CB Payments Limited (CBPL), a Coinbase entity in the UK responsible for providing gateway services for trading ‘crypto assets’, had previously agreed to enhance its financial crime defences. This agreement came about after an FCA inspection in October 2020, which identified deficiencies in the firm's measures to prevent financial crime.
According to the agreement, CBPL was restricted from acquiring new high-risk customers until it had adequately addressed the identified issues. Despite this, the FCA found that CBPL serviced 13,416 high-risk customers, with nearly a third of them depositing a total of $24.9 million.
Breach Details and Financial Transactions
The funds from these high-risk customers were used to carry out crypto asset transactions across various Coinbase platforms, totalling approximately $226 million. These activities continued undetected for nearly two years, illustrating significant lapses in CBPL’s operational controls and compliance measures.
Statements from the FCA
Therese Chambers, the joint executive director of enforcement at the FCA, stated, “CBPL’s controls had significant weaknesses and the FCA told it so, which is why the requirements were needed. CBPL, however, repeatedly breached those requirements." She emphasized the seriousness of the breaches and the importance of robust financial crime controls.
The Fine and Response from Coinbase
As a result of these violations, CBPL has been fined 3.5 million pounds (approximately $4.5 million). The fine was reduced by 30% due to CBPL's agreement to resolve the matter promptly. In response to the fine, Coinbase affirmed its commitment to regulation, stating, "We welcome regulation and are dedicated to working proactively and closely with the most sophisticated financial regulators in the world, including the FCA, to ensure we offer the most compliant, trusted and secure platform for our customers."
Industry Implications
Kate Gee, a crypto litigation lawyer at Signature Litigation, commented on the significance of this penalty, noting it as a stark warning for other firms in the industry. She emphasized the critical need for robust financial crime controls and the consequences of non-compliance, indicating that firms failing to meet operational restrictions would face stringent enforcement actions.
