Coinbase UK Unit Faces $4.5 Million Fine for Violating Financial Crime Conditions

The Financial Conduct Authority (FCA) has imposed a $4.5 million fine on CB Payments Limited, the UK subsidiary of Coinbase, for breaching a voluntary agreement aimed at preventing the onboarding of high-risk customers. The FCA identified significant issues with CBPLs control systems.

Breach of Agreement

In October 2020, CBPL entered a voluntary agreement with the FCA to restrict onboarding of new clients deemed “high-risk” to curb potential criminal activities on the platform, maintaining market integrity and reducing money laundering risks. Despite these measures, the FCA found that CBPL had violated the agreement by onboarding and servicing 13,416 high-risk clients. Therese Chambers, FCA‘s joint executive director of enforcement and market monitoring, criticised CBPL’s management for its substantial lack of control.

“CBPLs controls had significant flaws,” Chambers said. “These were already noted by the FCA, leading to the implementation of these requirements. Yet, CBPL repeatedly broke these rules.”

The FCA‘s investigation revealed that these compliance failures increased CBPL’s risk of criminal activities, including money laundering. The $4.5 million fine underscores the FCAs zero-tolerance policy towards regulatory violations that threaten market integrity.

Total crypto market cap currently at $2.2 trillion. Chart:TradingView

According to Kate Gee, a crypto litigation attorney at Signature Litigation, this sanction, the first of its kind, signals to companies the importance of stringent financial crime management.

Firms that fail to comply with operational limits or do not adequately guard against financial crime will face scrutiny and enforcement action, Gee warned.

The fine negatively impacted Coinbases stock, causing a nearly 2% decline. On Thursday, July 25, during premarket trading, the share price was $240.30.

CBPLs Response

In response to the FCAs findings, Coinbase expressed its commitment to regulatory compliance and acknowledged the infractions. Coinbase stated that CBPL is continually enhancing its control systems to meet legal standards and noted that the FCA recognized CBPLs cooperation in the investigation.

Coinbase highlighted that only 0.3% of all new clients from October 30, 2020, to October 1, 2023, were high-risk, and their onboarding was inadvertent. The company emphasised its seriousness regarding the FCAs findings and its ongoing efforts to improve control systems to prevent future breaches.

Investors and the crypto market are closely watching as Coinbase addresses these compliance issues to see how the company maintains its regulatory commitments and improves its control systems.