Coinbase UK Unit Fined $4.5M for Breaching High-Risk Customer Trading Restrictions

• Coinbase’s UK branch, CB Payments Limited (CBPL), has been handed a £4.5 million fine by the UK Financial Conduct Authority (FCA) due to its lapses in adhering to regulatory requirements regarding high-risk client services.
• The entity does not directly manage crypto transactions for users but acts as an intermediary for trading within the broader Coinbase Group, despite its lack of registration for crypto activities within the UK.
• Notably, CBPL was found to have facilitated services for over 13,000 high-risk clients, in violation of restrictions, leading to significant financial movements totaling around $226 million.

Coinbase’s UK unit fined by FCA for compliance failures, impacting high-risk customer onboarding and significant financial transactions.

Regulatory Breach and FCA Fine

CB Payments Limited (CBPL), the UK arm of the Coinbase Group, recently received a £4.5 million fine from the UK’s Financial Conduct Authority (FCA). This action follows CBPL’s transgressions against a mandatory regulatory framework that prohibits offering services to high-risk clients without proper registration and compliance.

Failure in Compliance and Control

The FCA’s investigation highlighted significant deficiencies in CBPL’s financial crime control mechanisms. The company’s voluntary regulatory compliance requirements (VREQ) from October 2020 stipulated a moratorium on new high-risk customers until its compliance frameworks were bolstered. Contrarily, CBPL allegedly continued to onboard 13,416 high-risk customers, facilitating considerable financial transactions through other Coinbase entities.

Operational Deficiencies and Financial Impact

The FCA emphasized that CBPL’s shortcomings stemmed from inadequate skill and diligence in devising, testing, and supervising their control processes. This oversight allowed high-risk customers to funnel approximately $25 million, ultimately moving a total of $226 million through the Coinbase Group systems, thereby breaching the VREQ.

Officials’ Remarks on the Enforcement Action

Therese Chambers, the joint Executive Director of Enforcement and Market Oversight at the FCA, stressed the critical nature of robust financial crime controls for entities like CBPL, given the inherent money laundering risks associated with cryptocurrency. Chambers asserted that the FCA’s enforcement was imperative due to CBPL’s repeated non-compliance, which might have enabled illicit activities via its platform.

Conclusion

This enforcement action underscores the critical need for stringent compliance and oversight in the crypto industry. It serves as a cautionary tale for financial firms globally, emphasizing the importance of adhering to regulatory standards to mitigate risks related to financial crimes. Moving forward, it is anticipated that the regulatory landscape will continue to evolve, with increasing scrutiny on financial institutions operating within the digital asset space.