Tech
Coinbase Subsidiary Fined £3.5m for Breach of Onboarding Controls
A Coinbase subsidiary has been fined £3.5 million by the UK’s financial watchdog for accepting “high-risk” customers despite voluntary restrictions.
CB Payments Limited (CBPL), a UK-incorporated entity and part of Coinbase Group, has been fined by the Financial Conduct Authority (FCA) for breaching the terms of a voluntary requirement signed in 2020. This is the first enforcement action of its kind against a cryptocurrency trading firm.
CBPL agreed to address security issues in its framework before taking on high-risk clients.
CBPL, which is not currently registered to carry out cryptocurrency activities in the UK, has integrated or provided e-money services to 13,416 high-risk customers.
The FCA said that funds deposited by these customers were used to make withdrawals and then “execute multiple cryptocurrency transactions via other Coinbase group entities” worth approximately $226 million (£175 million).
The financial regulator added that the breaches were the “result of a lack of skill, care and diligence on the part of CBPL”.
“Firms like CBPL that allow cryptocurrency trading need to have strong financial crime controls,” said Therese Chambers, joint executive director for enforcement and market supervision at the FCA.
“CBPL’s controls had significant weaknesses and the FCA told them so, which is why the requirements were necessary. CPBL, however, repeatedly breached those requirements.
“This has increased the risk that criminals could use CBPL to launder the proceeds of crime. We will not tolerate such laxity, which jeopardizes the integrity of our markets.”
In response to the decision, Coinbase said its subsidiary had “inadvertently onboarded” customers “classified as high risk.”
“Coinbase remains committed to high standards of regulatory compliance, and that means working with regulators on compliance and other matters,” the company said.
“We are always willing to acknowledge when we are lacking and make improvements, and that is what we have done here.”
The FCA investigation was limited to CBPL’s UK operations under its voluntary agreement and does not cover Coinbase’s wider operations. The fine is the first ever by the FCA under the Electronic Money Regulations 2011.
CBPL agreed to settle the matter and was therefore entitled to a 30% discount on the fine.
Kate Gee, a partner and cryptocurrency litigation lawyer at Signature Litigation, said the fine should “be seen as a warning to companies to make their financial crime controls extremely important, particularly in the cryptocurrency sector, where money laundering risks are greatest.”
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