By Michael Scott
The FCA fines crypto exchange Coinbase subsidiary $4.5 million, alleging a breach in regulatory agreement to bolster defence against financial crime.
The UK Financial Conduct Authority (FCA) revealed in a Thursday statement that it had funded CB Payments Limited (CBPL) £3.5 million, translating into $4.5 million, to aid ‘high-risk customers’ in executing crypto transactions.
The regulatory watchdog outlined in the Thursday statement that CBPL facilitates customers’ crypto purchases on the crypto exchange Coinbase. The statement adds that CBPL renegaded from its commitment to engage with the FCA in tackling financial crime.
The FCA, in its statement, reveals that CBPL is a part of the Coinbase Group that majors in operating crypto asset trading that is accessible globally. While CBPL is not approved to undertake crypto asset transactions for clients, it acts as the gateway for clients trading in crypto assets through the Coinbase Group ecosystem.
Coinbase Hit with £3.5M Fine
The FCA acknowledges entering into a voluntary requirement (the VREQ) at the onset of Q4 2020. Such arose from significant engagement relating to concerns regarding the effectiveness of financial crime controls utilized by CBPL. The FCA indicates that the VREQ barred the CBPL from onboarding new high-risk customers while simultaneously addressing the issues in its framework.
FCA accuses CBPL – a Coinbase subsidiary authorized in 2017- of onboarding and offering e-money services to 13,416 clients identified as high-risk. The watchdog indicates that nearly 31% of the clients made $24.9 million in cumulative deposits and transacted $226 million.
The FCA imposed a $4.5 million fine for laxity in the Coinbase subsidiary. The fine is the first for the FCA to impose under the Electronic Money Regulations 2011. The joint head of enforcement and market oversight at the UK’s FCA, Therese Chambers, declared the agency will not tolerate such laxity in compliance with the fight against financial crime.
Chambers observed that crypto-linked money laundering risks are obvious and urged firms to up defenses against the vice. The joint executive director decried that the controls deployed by CBPL had apparent weaknesses. Despite the FCA clarification on the need for the requirements, CBPL overlooked it.
Chambers continued that CPBL would repeatedly breach the requirements, adding that the apparent weakness was a leeway that high-risk customers would leverage for money laundering. The executive noted that the weak controls increased the vulnerability of criminals to leverage CBPL in laundering crime proceeds.
Unending Legal Woes
Coinbase subsequent statement affirmed its resolve to take the regulator’s findings seriously. As a regulated institution, Coinbase is assured of proactively pursuing enhanced controls to comply with regulatory obligations.
Coinbase is the US leading digital asset exchange, allowing users to execute crypto-based transactions on various coins and tokens, including Ethereum, Bitcoin, and USD Coin (USDC). Beyond the $4.5 fine by the FCA, Coinbase has fallen victim to enforcement actions undertaken by regulators in the US.
Meanwhile, Coinbase is embroiled in a protracted legal tussle with the US Securities and Exchange Commission (SEC). A recent development in the case is Coinbase alleging that the SEC refuses to produce documents critical for it to lodge a defence.
A motion filed this week urges the New York South District Court to compel access to the documents that Chair Gary Gensler holds. Coinbase claims frustration in an attempt to access the alleged SEC’s guidance to the crypto market stakeholders and privileged documents.
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