Key Insights
- The UK’s FCA fined CB Payments Ltd, a Coinbase subsidiary, £3.5 million for breaching financial crime controls and onboarding high-risk customers despite restrictions.
- CBPL failed to meet anti-money laundering obligations and allowed $24.9 million in deposits linked to crypto transactions.
LONDON (MarketsXplora) – The UK’s Financial Conduct Authority (FCA) has imposed a fine of £3.5 million on CB Payments Ltd (CBPL), a UK-based subsidiary of cryptocurrency exchange Coinbase, for repeatedly breaching a requirement that restricted the firm from offering services to high-risk customers.
CBPL, authorized as an e-money institution by the FCA since 2017, facilitates customers’ access to cryptoassets through other entities within the Coinbase Group, though it does not directly handle cryptoasset transactions. The FCA’s investigation into CBPL began after the regulator identified “significant weaknesses and gaps” in the firm’s financial crime control framework during a 2020 inspection.
Coinbase onboarded high-risk customers
As part of the investigation, the FCA noted that CBPL had agreed to a voluntary requirement (VREQ) in October 2020, which prohibited the onboarding of new high-risk customers while the firm worked to address its compliance issues. Despite this restriction, CBPL went on to onboard and/or provide e-money services to 13,416 high-risk customers, violating the terms of the VREQ.
Around 31% of these high-risk customers deposited a total of $24.9 million, a portion of which was used to execute approximately $226 million in cryptoasset transactions via other entities within the Coinbase Group. The FCA’s findings highlighted that these actions significantly increased the potential for financial crime, a key concern given the crypto sector’s vulnerability to money laundering and illicit activity.
The FCA’s enforcement action is the first of its kind under the UK’s Electronic Money Regulations 2011. In its statement, the regulator emphasized that CBPL’s repeated breaches of its VREQ obligations were a result of the company’s “lack of due skill, care, and diligence” in implementing, testing, and monitoring the necessary financial crime controls. These failures meant that material breaches went undetected for almost two years.
CBPL cooperated with the FCA’s investigation
CBPL’s cooperation with the FCA throughout the investigation, alongside its agreement to resolve the matter, earned it a 30% reduction in the fine. Coinbase, in a statement, acknowledged the mistake, clarifying that the firm “unintentionally onboarded” some customers between October 2020 and October 2023, constituting only 0.34% of the total customer base. The company also emphasized its commitment to enhancing its financial crime controls to prevent future issues and ensure compliance with regulatory obligations.
Therese Chambers, FCA’s joint executive director of enforcement and market oversight, stressed that financial crime controls in the crypto sector must be robust, particularly given the heightened risks of money laundering associated with digital assets. “We will not tolerate such laxity, which jeopardises the integrity of our markets,” she said, underlining the importance of firms in the crypto space complying with regulatory requirements.
This penalty serves as a stark reminder to other firms in the crypto sector that laxity in adhering to financial crime controls will not be tolerated by regulators. As the crypto market continues to grow, the FCA’s action highlights the critical need for firms to implement effective anti-money laundering measures and work diligently to protect against misuse by criminals.
The fine, which marks a significant step in the FCA’s oversight of the cryptocurrency sector, also serves as a warning to other crypto firms seeking to operate in the UK. Firms must ensure they meet the standards set out by regulators, or risk facing similar scrutiny and enforcement action.
Coinbase has committed to maintaining high standards of regulatory compliance, expressing its willingness to cooperate with regulators and make necessary improvements when required.