The cryptocurrency world has seen its fair share of regulatory challenges, with the latest episode involving the UK arm of prominent cryptocurrency exchange, Coinbase. The Financial Conduct Authority (FCA), the UK’s financial regulator, has imposed hefty fees on A fine of £3.5 million ($4.5 million) CB Payments Limited (CBPL), a UK-based company, has been charged for repeatedly violating a voluntary agreement aimed at limiting the onboarding of high-risk customers. This landmark enforcement action underscores the growing focus on compliance and the need for crypto firms to prioritize strong financial crime controls.
Coinbase UK Voluntary Agreement with the Financial Services Authority (FCA)
In October 2020, CBPL, the Coinbase subsidiary responsible for facilitating cryptocurrency trading in the UK, entered into a voluntary agreement with the Financial Conduct Authority. The agreement was intended to address the regulator’s concerns about the effectiveness of CBPL’s framework for combating financial crime. As part of the agreement, CBPL committed to restricting the onboarding of new clients deemed by the FCA to be “high risk” until the identified issues were resolved.
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breach of voluntary agreement
However, despite the voluntary agreement, the FCA’s investigation revealed that CBPL had repeatedly breached the restrictions. The regulator found that CBPL had onboarded and provided e-money services to 13,416 high-risk customers. Alarmingly, around 31% of those customers deposited a total of around £19.3 million ($24.9 million), which was then used to execute multiple cryptocurrency transactions through other Coinbase entities, totaling around £175 million ($226 million).
Major weaknesses in CBPL controls
Therese Chambers, the FCA’s joint executive director of enforcement and market supervision, highlighted the seriousness of CBPL’s failings. She said: “CBPL’s controls had significant weaknesses, which the FCA had already flagged, leading to the implementation of these requirements. However, CBPL consistently breached these requirements.” The regulator’s findings highlighted CBPL’s lack of skill, care and diligence in developing, testing and overseeing the controls designed to enforce the voluntary agreement.
Increased risk of money laundering
The FCA’s investigation also revealed that CBPL’s compliance shortcomings significantly increased the risk of criminal activity, including money laundering, on the platform. “The money laundering risks associated with cryptocurrencies are clear and businesses need to take them seriously,” Chambers warned. She stressed that businesses like CBPL, which enable cryptocurrency trading, need to put in place robust anti-financial crime controls to mitigate such risks.
Enforcement actions taken by the Financial Services Authority
The £3.5 million fine imposed on CBPL marks the first time the FCA has used its enforcement powers under the Electronic Money Regulations 2011. The action sends a clear message to the cryptocurrency industry that regulatory compliance is not optional, and that firms that fail to prioritise financial crime controls will face serious consequences.
Coinbase’s Response and Commitment to Compliance
In response to the FCA’s findings, Coinbase acknowledged the regulator’s concerns and reiterated its commitment to regulatory compliance. The company stated that CBPL continues to proactively enhance its control systems to ensure compliance with its regulatory obligations. Coinbase also noted that the FCA has acknowledged CBPL’s cooperation during the investigation.
Unintended inclusion of high-risk customers
Interestingly, CBPL explained that the inclusion of high-risk clients was “unintentional,” as they represent just 0.34% of total new clients registered between October 30, 2020 and October 1, 2023. The company stressed that it takes the FCA’s findings and its broader regulatory compliance seriously, and is working to strengthen its oversight mechanisms to prevent future breaches.
Impact on Coinbase Stock
News of the FCA’s enforcement action against CBPL had an immediate impact on Coinbase shares. On the day the fine was announced, Coinbase Global shares closed down about 5.5% at $231.52, reflecting market concerns about the regulatory challenges facing the UK exchange subsidiary.
Conclusion
The FCA’s enforcement action against Coinbase’s UK subsidiary is a stark reminder that regulatory compliance is not optional in the cryptocurrency industry. Firms that fail to prioritize financial crime controls and adhere to regulatory requirements will face severe consequences, as evidenced by the £3.5 million fine imposed on CBPL. This case highlights the importance of proactive compliance efforts, transparent communication with regulators, and a strong commitment to maintaining the integrity of the cryptocurrency market.
Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice. Investing in cryptocurrencies involves risks, and readers should conduct their own research and consult with their financial advisors before making investment decisions. Hash Herald is not responsible for any profits or losses in this process.