UK’s Coinbase subsidiary fined $4.5 Million for high-risk customer breaches

• CB Payments Limited (CBPL) a subsidiary the Coinbase Group fined $4.5 million by FCA for onboarding high-risk customers.
• Breaches occurred despite a 2020 agreement to halt onboarding high-risk customers.
• This is FCA’s first action under Electronic Money Regulations 2011 against a crypto firm.

In a landmark decision, the Financial Conduct Authority (FCA) has fined the UK’s Coinbase subsidiary, CB Payments Limited (CBPL), £3.5 million ($4.5 million) for repeated breaches of anti-money laundering regulations.

This enforcement marks the first action taken by the FCA under the Electronic Money Regulations 2011 against a cryptocurrency firm.

CBPL had agreed with the FCA not to onboard high-risk customers

In October 2020, CB Payments Limited (CBPL), part of the Coinbase Group, entered a voluntary agreement with the FCA to halt the onboarding of high-risk customers.

This agreement aimed to bolster the firm’s financial crime controls, which had significant weaknesses as per the FCA’s assessment.

However, despite the restrictions, CBPL proceeded to onboard 13,416 high-risk customers. These customers deposited approximately $24.9 million, which was used for withdrawals and crypto transactions amounting to $226 million through other Coinbase entities.

The FCA’s investigation revealed that CBPL failed to exercise due skill, care, and diligence in designing, testing, implementing, and monitoring controls to comply with the voluntary requirement (VREQ).

The firm did not adequately consider all potential customer onboarding methods, leading to substantial breaches that went undetected for nearly two years.

The Joint Executive Director of Enforcement and Market Oversight at the FCA, Therese Chambers, in a statement issued on July 25, highlighted the severity of the situation stating that CBPL’s controls had significant weaknesses, and the FCA told it so, which is why the requirements were needed.

According to the statement, CBPL, however, repeatedly breached those requirements. This 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.

The Coinbase subsidiary received a 30% discount on the fine

Coinbase responded to the FCA’s findings, stating that it takes regulatory compliance very seriously and is actively enhancing its controls to ensure adherence to regulatory obligations.

The FCA acknowledged CBPL’s cooperation in the investigation and noted that the firm received a 30% discount on the fine for agreeing to resolve the matter early.

Warning to crypto firms with no financial crime controls

The FCA’s action reflects a broader intent to hold cryptocurrency firms accountable for their anti-money laundering obligations.

Kate Gee, a partner and crypto disputes specialist at Signature Litigation in London, said that the fine against CBPL should be considered a warning to firms to consider their financial crime controls as hugely important, particularly in the crypto sector where there are increased money laundering risks.

Gee went ahead to state that firms that do not do enough to protect against financial crime and who fail to comply with operational restrictions in place will face scrutiny and enforcement action.

This fine not only underscores the importance of robust financial crime controls but also signals potential increased scrutiny for other cryptocurrency exchanges operating in the UK.

The FCA’s decisive action may prompt other platforms to reassess their compliance frameworks to avoid similar penalties.