Coinbase, a popular cryptocurrency exchange, recently faced a hefty fine of $4.5 million in the UK. This fine was imposed on their entity, CB Payments Limited (CBPL), by the Financial Services Authority (FSA) for violating an agreement. The FSA found that CBPL had been onboarding high-risk customers, potentially allowing illicit funds to enter the country’s financial system.
According to the FSA, CBPL was fined £3,503,546 by the Financial Conduct Authority (FCA) for repeatedly breaching a requirement that prohibited the firm from offering services to high-risk customers. In October 2020, CBPL entered into a voluntary requirement (VREQ) after concerns were raised about the effectiveness of its financial crime control framework. The VREQ was meant to prevent CBPL from taking on new high-risk customers while addressing the issues with its framework.
Despite these restrictions, CBPL managed to onboard 13,416 high-risk customers who collectively conducted transactions worth $226 million. This raised concerns for the regulator, as it highlighted gaps in the onboarding processes of cryptocurrency exchanges operating in the jurisdiction.
Therese Chambers, the FCA’s joint executive director of entitlement and market oversight, emphasized the importance of strong financial crime controls in firms that facilitate crypto trading. She stated, “The money laundering risks associated with crypto are obvious and firms must take them seriously. We will not tolerate laxity that jeopardizes the integrity of our markets.”
In response to the FCA’s findings, Coinbase issued a statement acknowledging the seriousness of regulatory compliance. They mentioned that CBPL, which operates in the UK under an e-money license, is actively enhancing its controls to ensure compliance with regulatory obligations. Coinbase clarified that CBPL’s operations are limited to providing e-money and payment services to customers in specific jurisdictions, and it does not offer crypto transaction services.
The enforcement action taken against Coinbase under the UK’s Electronic Money Regulations 2011 marks the first time this regulation has been used to fine an entity. This incident serves as a reminder to cryptocurrency investors and firms operating in the space to prioritize regulatory compliance and strengthen their financial crime controls to prevent money laundering risks associated with crypto transactions.