Coinbase’s UK unit fined for violating financial regulations
Coinbase’s UK unit, CB Payments Limited (CBPL), has been fined $4.5 million by the UK Financial Conduct Authority (FCA) for repeatedly breaching regulations that prohibit the firm from providing services to high-risk customers.
Unauthorized Crypto Activities
Although CBPL does not directly handle crypto transactions for customers, it acts as a conduit for trading through other entities within the Coinbase Group. However, CBPL is not currently authorized to engage in crypto activities in the UK.
Failure to Comply with Restrictions
In October 2020, after discussions with the FCA about concerns regarding CBPL’s financial crime control framework, the firm agreed to a voluntary requirement (VREQ) that prohibited CBPL from accepting new high-risk customers until the framework issues were resolved.
Despite this agreement, the FCA found that CBPL continued to onboard high-risk customers and provide e-money services to 13,416 individuals, in violation of the restrictions.
Coinbase must ensure that they have robust systems and controls in place to prevent financial crime and protect their customers. The breaches identified in this case are a clear demonstration of the consequences of failing to do so.”
Weak Controls Lead to Breaches
The Financial Conduct Authority (FCA) recently reported that Coinbase Pro Limited (CBPL) had breached anti-money laundering regulations. This breach resulted in approximately $226 million being used for unauthorized transactions.
The FCA attributed these breaches to CBPL’s lack of skill and diligence in implementing controls to enforce the Virtual Asset Regulation and Enforcement Directive (VREQ). This failure extended to the oversight of customer onboarding procedures, leading to significant breaches going undetected for almost two years.
Enforcement Action by FCA
Therese Chambers, from the FCA’s Enforcement and Market Oversight department, emphasized the importance of firms like Coinbase taking money laundering risks seriously. She stressed the need for robust systems and controls to prevent financial crime and protect customers.
The FCA’s enforcement action against CBPL serves as a reminder to all firms operating in the crypto space to prioritize compliance with anti-money laundering regulations and implement effective controls to mitigate risks. Failure to do so can have severe consequences, as evidenced by this case.
Strong Financial Crime Controls Needed for Crypto Trading Platforms
Crypto trading platforms that fall under the jurisdiction of the CBPL must have robust financial crime controls in place. Unfortunately, the controls implemented by CBPL were found to have significant weaknesses, leading to the issuance of specific requirements by the FCA to address these gaps.
Warnings Issued About Criminal Misuse of the Platform
In addition to the weaknesses in financial crime controls, there were also concerns raised about the potential for criminals to exploit the platform for money laundering activities. Chambers, a representative from the FCA, highlighted the increased risk of criminals using the platform to launder the proceeds of crime.
Enforcement Action Under Electronic Money Regulations 2011
It is worth noting that the enforcement action taken against CBPL was carried out under the Electronic Money Regulations 2011. This marks the first instance of the FCA using these powers for enforcement purposes, signaling a commitment to ensuring compliance within the crypto trading sector.
