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Coinbase subsidiary fined £3.5m for violating onboarding controls

Coinbase fined
Image credit: David Esser / Shutterstock

A Coinbase subsidiary has been fined £3.5m by the UK financial watchdog for onboarding “high-risk” customers despite voluntary restrictions placed on it.

CB Payments Limited (CBPL), a UK-incorporated entity and part of Coinbase Group, was fined by the Financial Conduct Authority (FCA) for violating the terms of a voluntary requirement it entered in 2020. It is the first such enforcement action against a cryptoasset trading company.

CBPL agreed to address security issues with its framework before taking on high-risk customers.

CBPL, which is not currently registered to undertake cryptoasset activities in the UK, onboarded or provided e-money services to 13,416 high-risk customers.

The FCA said funds deposited by these customers were used to make withdrawals and then “execute multiple cryptoasset transactions via other Coinbase Group entities” worth approximately $226m (£175m).

The financial regulator added that the breaches were the “result of CBPL’s lack of due skill, care and diligence”.

“Firms like CBPL that enable crypto trading, need to have strong financial crime controls,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.

“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 jeopardises the integrity of our markets.”

Responding to the decision, Coinbase said its subsidiary “unintentionally onboarded” the customers “classified as high-risk under”.

“Coinbase remains committed to high standards of regulatory compliance, and this means partnering with regulators when it comes to compliance and other areas,” the company said.

“We are always willing to acknowledge when we fall short, and to make improvements – which is what we have done here.”

The FCA’s investigation was limited to the UK operations of CBPL under its voluntary agreement and do not concern the wider operations of Coinbase. The fine is the first-ever from the FCA under the Electronic Money Regulations 2011.

CBPL agreed to resolve the matter and therefore qualified for a 30% discount on the fine.

Kate Gee, partner and crypto litigation lawyer at Signature Litigation, said the fine should “be considered a warning to firms to consider their financial crime controls as hugely important, in particular in the crypto sector where there are increased money laundering risks.”

Read more: Lack of crypto skills caused delays in FCA regulation, says watchdog

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