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Crypto exchange Coinbase has been fined £3.5mn by the UK’s financial watchdog for providing payment services to more than 13,000 “high-risk” customers, in the first enforcement action by the regulator against a company that enables cryptocurrency trading.
The Financial Conduct Authority fined Coinbase’s subsidiary, CB Payments Ltd, for “repeatedly breaching a requirement that prevented the firm from offering services to high-risk customers”, it said on Thursday. High-risk customers included those on sanctions lists, politically exposed people and those who declared themselves unemployed.
The fine is the first to be handed out by the FCA to a firm that handles payments used in crypto trading, in stark contrast to the US financial regulator, which has aggressively pursued digital asset companies in recent years. In its most recent large penalty, the Securities and Exchange Commission fined collapsed crypto group Terraform Labs and its founder more than $5bn earlier this year.
“The money-laundering risks associated with crypto are obvious and firms must take them seriously,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA. CBPL’s controls had “significant weaknesses” which “increased the risk that criminals could use CBPL to launder the proceeds of crime”, she added.
Coinbase’s payments subsidiary entered into a so-called “voluntary requirement” with the FCA in October 2020 following “concerns about the effectiveness” of its financial crime control framework, the regulator said. This agreement prevented the company from taking on risky clients.
However, the FCA said that CBPL’s “lack of due skill, care and diligence” in sticking to the requirement meant it repeatedly allowed contentious customers to use its services in the three years following the agreement. “CBPL onboarded and/or provided its services to 13,416 high-risk customers”, the FCA said. Of those, about 31 per cent deposited a total of about $24.9mn, which was used to make withdrawals and crypto trades through other Coinbase entities, totalling about $226mn.
Nasdaq-listed Coinbase is one of the world’s biggest crypto exchanges, allowing retail and institutional traders to buy and sell digital tokens. CBPL is an FCA-authorised e-money group.
“We take the FCA’s findings and our broader regulatory compliance very seriously,” Coinbase said in a statement, adding: “We are always willing to acknowledge when we fall short, and to make improvements — which is what we have done here.”
Coinbase added that the number of high-risk individuals who used its services amounted to 0.34 per cent of the number of people “onboarded” by CBPL over the three-year period.
