In a significant development highlighting the increasing scrutiny on cryptocurrency exchanges, UK financial regulators have imposed a historic £3.5 million (approximately $4.5 million) fine on Coinbase’s UK arm, CB Payments Ltd., for serious deficiencies in anti-money laundering controls. The Financial Conduct Authority (FCA) uncovered that CBPL allowed billions of dollars to pass through its platform with minimal oversight, despite being warned repeatedly.
The FCA underscored the shortcomings in CBPL’s controls, emphasizing the necessity of the imposed requirements. However, CBPL continued to breach these requirements, significantly heightening the risk of criminals exploiting the platform for money laundering. The FCA emphasized a zero-tolerance approach towards such negligence that puts the market’s integrity at stake.
This move by the FCA signifies a pivotal moment in cryptocurrency regulation, demonstrating a global resolve among regulators to implement stringent measures to combat financial crimes. Despite being instructed to enhance its financial crime controls since 2020, CBPL continued onboard high-risk customers and failed to effectively monitor suspicious transactions.
The findings by the FCA are damning, revealing that between 2020 and 2023, CBPL processed approximately £19.6 million in deposits from 13,416 high-risk customers, leading to crypto transactions totaling around £178 million. Despite flagging only 62 suspicious transactions, the company allowed millions in potentially illicit funds to slip through. The regulator asserted that CBPL’s failures created ample opportunities for money laundering activities by criminals.
Combatting the laundering of funds through financial services assumes global significance, aligning with the FCA’s objective of safeguarding the UK financial system’s integrity. This enforcement action serves as a stern warning to authorized firms susceptible to being exploited by money launderers. Payment service providers and crypto trading facilitators are particularly at risk, necessitating robust systems and controls to mitigate potential exploitation.
Coinbase clarified that the investigation targeted unintended breaches of a voluntary agreement between the FCA and CBPL in late 2020. Despite agreeing to restrictions on high-risk customer onboarding, CBPL unintentionally onboarded a small percentage of customers classified as “high-risk,” prompting the FCA’s investigation and subsequent action. The FCA attributed these breaches to inadequate monitoring by the Coinbase Group’s product, engineering, and design team, which remained unnoticed for almost two years.
In response, Coinbase affirmed its commitment to regulatory compliance and emphasized proactive enhancements to ensure adherence to regulatory obligations. The firm acknowledged the FCA’s findings and expressed willingness to collaborate with regulators to rectify shortcomings and ensure compliance with regulatory standards.
Coinbase benefited from a 30% discount on the original fine amount, with the matter now resolved through agreement. This enforcement action represents the first FCA enforcement conducted under the UK Electronic Money Regulations 2011, setting a precedent for stricter oversight and accountability in the cryptocurrency industry.