Coinbase arm fined £3.5 M by UK watchdog over services to high-risk customers

The UK’s Financial Conduct Authority (FCA) has levied a £3.5 million fine on CB Payments Ltd (CBPL), a subsidiary of the cryptocurrency trading platform Coinbase, for failing to comply with regulations regarding high-risk customers.

This enforcement action underscores ongoing regulatory challenges within the rapidly evolving crypto industry and highlights the significant compliance expectations placed on financial services entities.

What did CB Payments do?

CB Payments Ltd, despite not directly engaging in cryptocurrency transactions, serves as a crucial gateway within the global Coinbase Group, facilitating e-money services for its customers.

In October 2020, the FCA raised concerns about the effectiveness of CBPL’s financial crime control framework.

Consequently, the firm entered into a “voluntary requirement” agreement with the FCA, stipulating that it would not offer services to new high-risk customers until these issues were addressed.

However, the FCA discovered that CBPL breached this agreement, continuing to provide services to high-risk customers.

Specifically, the watchdog identified that CBPL had facilitated services for 13,416 high-risk customers, with nearly a third of these clients depositing approximately $24.9 million.

These funds were subsequently used to execute multiple cryptoasset transactions through other entities within the Coinbase Group, totaling about $226 million.

The FCA cited a “lack of due skill, care and diligence” on the part of CBPL in adhering to the agreed requirements.

Regulatory enforcement and financial penalties

This enforcement action by the FCA marks its first significant penalty against a company involved in cryptoasset trading.

Therese Chambers, the FCA’s joint executive director of enforcement, emphasized that CBPL’s controls exhibited significant weaknesses, prompting the need for the original requirements.

Despite these directives, CBPL repeatedly failed to comply, leading to the substantial fine.

CBPL agreed to settle the matter and received a 30% reduction in the fine, which would otherwise have been £5 million.

This settlement reflects CBPL’s acknowledgment of its shortcomings and its commitment to address the identified issues.

Coinbase’s response and regulatory challenges

In response to the fine, Coinbase expressed its willingness to accept responsibility and implement necessary improvements.

The company reiterated its commitment to regulatory compliance, emphasizing its proactive engagement with global financial regulators, including the FCA.

Coinbase’s statement highlighted its dedication to offering a compliant, trusted, and secure platform for its customers.

The fine against CBPL is not only a significant financial penalty but also a stark reminder of the stringent regulatory environment in which cryptocurrency companies operate.

The FCA’s actions demonstrate its rigorous approach to ensuring compliance and mitigating financial crime risks within the sector.

Implications for the crypto industry

The fine imposed on CBPL has broader implications for the cryptocurrency industry. It underscores the importance of robust financial crime control frameworks and the need for continuous vigilance and compliance.

As the crypto industry continues to grow and evolve, regulatory scrutiny is likely to intensify, with regulators worldwide increasingly focusing on anti-money laundering (AML) and counter-terrorism financing (CTF) measures.

The post Coinbase arm fined £3.5 M by UK watchdog over services to high-risk customers appeared first on Invezz