Coinbase UK Fined $4.5 Million
Background on the Fine
Coinbase, a well-known cryptocurrency exchange, has found itself in trouble in the UK. The UK’s Financial Conduct Authority (FCA) has fined Coinbase’s UK arm, CB Payments Limited (CBPL), a hefty $4.5 million. The reason? They failed to follow a voluntary agreement about customer onboarding.
In 2020, CBPL agreed with the FCA to not onboard customers who were considered “high-risk.” However, they ended up onboarding 13,416 high-risk customers, violating the agreement. The FCA saw this as a serious breach and decided to penalize them.
Details of the Violation
CBPL had weak controls in place, according to the FCA. These weaknesses made it easier for criminals to use CBPL for money laundering. Therese Chambers, the joint executive director of enforcement and market oversight at the FCA, said in a statement on July 25:
“CBPL’s controls had significant weaknesses and the FCA told it so, which is why the requirements were needed. CPBL, however, repeatedly breached those requirements. This increased the risk that criminals could use CBPL to launder the proceeds of crime. We will not tolerate such laxity, which jeopardizes the integrity of our markets.”
Implications for the Crypto Industry
The FCA’s decision to fine Coinbase UK could signal the start of more scrutiny for other cryptocurrency exchanges in the region. This increased scrutiny might lead some platforms to seek more crypto-friendly regulatory jurisdictions to operate in.
Related to this, the FCA fined Coinbase’s UK arm under the Electronic Money Regulations 2011. This fine is notable because it is the first time the FCA has taken enforcement action based on this regulation.
The Fine Details
The British regulator fined Coinbase Group’s CBPL 3,503,546 pounds, which is equivalent to $4.5 million. The FCA found that the breaches went undiscovered for the past two years due to a lack of initial monitoring practices for the firm’s voluntary agreement (VREQ).
Coinbase UK’s CBPL only onboarded a small percentage of high-risk customers. According to a statement shared by Coinbase, only 0.34% of the customers they onboarded were considered “high-risk.” CBPL claims these customers were “unintentionally onboarded” between October 30, 2020, and October 1, 2023. This led to the FCA’s investigation and subsequent action.
FCA’s Investigation Focus
The FCA’s investigation did not focus on crypto asset transactions. Instead, it looked into CBPL’s e-money transmitter services. CBPL has been authorized by the FCA since 2017 as an e-money institution and provides e-money and payment services to customers in certain jurisdictions. However, CBPL is not authorized by the FCA to conduct crypto asset transactions for customers. Therefore, the FCA’s investigation did not examine any crypto asset transactions.
Coinbase’s Response to the Fine
Coinbase has responded to the fine by stating that they unintentionally onboarded some high-risk customers. They emphasized that only a small fraction of their customers were affected. Additionally, they mentioned that the fine was reduced by 30% because they agreed to resolve the matter with the FCA.
Future of Crypto Regulation in the UK
This fine could mark the beginning of a broader crackdown on cryptocurrency services providers in the UK. The FCA’s decision might lead to more stringent regulations for the crypto industry, which could impact how these businesses operate.
Summary of Key Points
- Coinbase UK’s arm, CBPL, was fined $4.5 million by the FCA.
- The fine was for onboarding 13,416 high-risk customers, which violated a voluntary agreement with the FCA.
- The FCA highlighted weaknesses in CBPL’s controls, raising concerns about money laundering risks.
- This fine is the first enforcement action by the FCA under the Electronic Money Regulations 2011.
- The FCA’s investigation focused on e-money transmitter services, not crypto asset transactions.
- Coinbase stated that only 0.34% of customers were high-risk and unintentionally onboarded.
- The fine was reduced by 30% as Coinbase agreed to resolve the matter.
Conclusion
The FCA’s action against Coinbase UK serves as a warning to other cryptocurrency exchanges about the importance of adhering to regulatory agreements. As the crypto industry continues to grow, it is likely that regulators will increase their scrutiny to ensure compliance and protect the integrity of financial markets. For Coinbase and other exchanges, this means implementing stronger controls and monitoring practices to avoid similar fines and ensure they operate within the bounds of the law.
