The Financial Conduct Authority (FCA) fined Coinbase’s UK branch £3.5 million (€4.16 million) for violating a voluntary agreement restricting services to high-risk customers. This development has not only impacted Coinbase’s reputation but also caused a dip in its global shares, which fell by over 2% in US pre-market trading.
In October 2020, Coinbase Payments Limited (CBPL) entered into a voluntary agreement with the FCA. This agreement stipulated that CBPL would not accept new users deemed high-risk by the regulator. This was a proactive measure following “significant engagement” with the FCA concerning the effectiveness of CBPL’s financial crime control framework.
Despite this agreement, the FCA discovered that CBPL onboarded and served 13,416 high-risk customers. These customers collectively deposited around $24.9 million (€22.9 million). The Coinbase Group entities used these funds to execute multiple crypto transactions and make withdrawals, totaling approximately $226 million (€208.30 million).
The FCA’s statement highlighted that the breaches were due to CBPL’s lack of due skill, care, and diligence in designing, testing, implementing, and monitoring the controls necessary to ensure compliance with the voluntary agreement. Therese Chambers, joint executive Director of Enforcement and Market Oversight at the FCA emphasised the gravity of the situation, stating that these breaches increased the risk of criminals using CBPL to launder the proceeds of crime.
“We will not tolerate such laxity, which jeopardises the integrity of our markets,” Chambers added, underscoring the FCA’s commitment to maintaining robust financial crime controls and market integrity.
Coinbase issued a statement in response to the fine, acknowledging that CBPL had unintentionally onboarded some customers classified as high-risk between October 30, 2020, and October 1, 2023 (representing 0.34% of customers onboarded). The firm reiterated its commitment to regulatory compliance and emphasised its dedication to partnering with regulators to ensure high compliance standards.
This fine serves as a stark reminder of the regulatory scrutiny that crypto platforms face, particularly in relation to anti-money laundering (AML) measures and the management of high-risk customers. The incident highlights the importance of robust compliance frameworks and the need for continuous monitoring and improvement.
For Coinbase, the fine represents a significant setback, both financially and reputationally. However, the company’s prompt acknowledgment of the issue and its commitment to compliance may help mitigate some of the negative impacts.
The FCA imposed a £3.5 million fine on Coinbase UK, highlighting the critical importance of adhering to regulatory agreements and maintaining stringent financial crime controls. As the crypto industry continues to evolve, companies likeCoinbase must prioritise compliance to safeguard market integrity and foster trust among regulators, customers, and stakeholders. This incident serves as a cautionary tale for other crypto firms to rigorously evaluate and enhance their compliance frameworks to avoid similar pitfalls.
