Coinbase asserts these on-boardings were accidental, yet 31% of these customers deposited $24.9 million. The FCA reports these funds were used for withdrawals and crypto transactions through other Coinbase entities, totalling $226 million.
In a move to clamp down on loose customer onboarding procedures, British regulators have fined cryptocurrency exchange Coinbase UK arm, CB Payments Limited (CBPL), £3.5 million ($4.5 million). The penalty results from CBPL’s breach of a voluntary agreement meant to prevent onboarding “high-risk customers.”
Coinbase UK Unit Fails FCA Compliance
The Financial Conduct Authority (FCA) identified the gaps in CBPL’s control system, which led to the agreement in October 2020. This agreement limited CBPL only to those new customers who are not high-risk and also prohibited the company from offering services to existing ones. However, the FCA discovered that CBPL was against these restrictions and brought in a disturbing number of 13,416 high-risk individuals.
Coinbase highlighted that the FCA’s findings are true and founded on facts. Coinbase CPBL is also mentioned in the report as the department’s work to improve controls and regulatory compliance was recognized. The FCA’s notice acknowledged these efforts and CBPL’s cooperation during the investigation as well.
While Coinbase claims these were unintentional on-boardings, a significant portion (around 31%) of these customers deposited roughly $24.9 million. These funds, according to the FCA, were used for withdrawals and crypto transactions through other Coinbase entities, totaling approximately $226 million.
FCA Warns of Laxity and Potential for Money Laundering
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA expressed serious concerns about the situation. She stated:
“CBPL’s controls had significant weaknesses, and the FCA told them so, which is why the requirements were needed. CPBL, however, repeatedly breached those requirements.”
Chambers further emphasized the heightened risk of criminals exploiting CBPL’s laxity for money laundering activities. The FCA’s stance is clear: it will not tolerate such disregard for regulations that threaten market integrity.
This incident highlights the ongoing challenge of regulating the crypto industry. While the FCA’s action serves as a deterrent, it also underscores the need for a more comprehensive, globally coordinated regulatory framework. Clear guidelines and stricter enforcement will be crucial in mitigating risks associated with money laundering and other illicit activities within the crypto sphere.
The impact of this fine on Coinbase’s overall operations remains to be seen. However, it undoubtedly serves as a wake-up call for the company and the broader crypto industry to prioritize robust Know Your Customer (KYC) procedures and ensure adherence to evolving regulations.
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