- UK watchdogs have fined Coinbase for breach of a voluntary agreement related to customer onboarding.
- Coinbase has acknowledged the FCA’s findings and vowed to tighten its compliance belt.
- Coinbase has downplayed the significance of the misstep.
The cryptocurrency industry has been a hotbed of innovation and a breeding ground for illicit activity. This lack of regulation has left authorities scrambling to rein in the Wild West of finance. UK regulators slapped Coinbase’s British arm, CB Payments Limited (CBPL), with a hefty $4.5 million fine in a move that could signal a coming crackdown.
The penalty stems from CBPL’s violation of a voluntary agreement designed to prevent the onboarding of high-risk customers. The Financial Conduct Authority (FCA), the UK’s financial watchdog, announced the fine on Thursday, citing significant weaknesses in CBPL’s controls.
Coinbase Fined by UK Watchdog
In October 2020, CBPL struck a deal with the FCA. This agreement seemed straightforward: CBPL would not accept new high-risk customers and would not service any existing ones that fit that bill. But good intentions paved the road to a bumpy ride for CBPL. Despite the clear terms, the FCA found that 13,416 (0.34% of new customers onboarded during the investigated period) “high-risk customers” ended up on CBPL’s books.ย
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Therese Chambers, a high-ranking official at the FCA, wasn’t shy about criticizing CBPL’s shortcomings. โCBPLโs controls had major weaknesses, and the FCA had already pointed this out, which led to implementing these requirements. Nevertheless, CBPL continually violated these requirements,โ Chambers remarked.
The FCA made it clear: such negligence wouldn’t fly. It undermines the entire financial system’s integrity. This hefty fine serves as a warning to other crypto exchanges, underlining the importance of strong compliance and following the rules.
Coinbase Vows Compliance Improvement
Coinbase acknowledged the FCA’s findings and vowed to tighten its compliance belt. They say CBPL is actively working to improve its controls and meet the FCA’s requirements. They also emphasized their cooperation with the investigation.
Coinbase said some high-risk customers “slipped through the cracks” between October 2020 and October 2023. They claim these customers represent a tiny fraction, only 0.34%, of all new customers acquired during that period.
The news of the fine sent shivers through the market. Coinbase’s stock price took a tumble, dipping nearly 2% in pre-market trading on Thursday. This incident underscores a crucial point: robust compliance measures become a top priority for crypto companies as the cryptocurrency industry matures and attracts more regulatory attention.
On the Flipside
- The FCA fine exposes the limited and or narrow controls put in place to comply with the VREQ.
- Coinbase has acknowledged the issue and is taking steps to rectify it.
Why This Matters
This hefty fine imposed on Coinbase highlights the increasing regulatory pressure on cryptocurrency exchanges. It underscores the broader trend of governments worldwide seeking to bring the crypto industry under tighter control. This case serves as a stark warning to other platforms, emphasizing the need to prioritize compliance and risk management to avoid similar penalties and maintain investor trust.
To learn more about the lawsuit filed by Coinbase against the SEC and FDIC to gain information on how they approach crypto regulation, read here:
Coinbase Sues SEC and FDIC over Crypto Information Requests
To learn more about the ongoing legal battle between Coinbase and the SEC regarding the lack of clear regulations for the cryptocurrency industry, read here:
Coinbase Fights SECโs Catch-22 Approach to Crypto
