Coinbase’s UK Arm Fined £3.5 Million for Breaching Agreement on High-Risk Customers

UK regulators have fined Coinbase’s UK arm £3.5 million for violating an agreement to avoid onboarding high-risk customers, highlighting significant compliance lapses within the crypto exchange.

Key Points

• UK regulators fined Coinbase’s UK arm £3.5 million for onboarding high-risk customers.
• CB Payments Limited (CBPL) violated a voluntary agreement with the Financial Conduct Authority (FCA).
• CBPL onboarded 13,416 high-risk customers, with significant transactions totaling approximately $226 million.
• The FCA emphasized that these breaches increased the risk of money laundering.
• Coinbase acknowledged the FCA’s findings and is working to improve its compliance controls.

In a significant regulatory action, UK regulators have fined Coinbase‘s UK arm, CB Payments Limited (CBPL), £3.5 million ($4.5 million) for breaching a voluntary agreement designed to prevent the onboarding of high-risk customers. This fine comes amid broader concerns about compliance and regulatory oversight in the rapidly growing cryptocurrency industry.

The Financial Conduct Authority (FCA), the UK’s financial watchdog, stated that CBPL, part of the global cryptocurrency trading platform Coinbase Group, violated the terms of an agreement made in October 2020. This agreement restricted CBPL from taking on new customers deemed high-risk by the regulator and prohibited it from offering services to these individuals.

Despite these restrictions, CBPL onboarded 13,416 high-risk customers, with around 31% of them depositing approximately $24.9 million. These funds facilitated withdrawals and crypto transactions through other Coinbase entities, amounting to roughly $226 million. The FCA highlighted that CBPL’s inadequate controls significantly increased the risk of money laundering.

“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,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA. “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.”

In response to the fine, Coinbase issued a statement asserting its commitment to regulatory compliance. “CBPL continues to proactively enhance its controls to ensure compliance with its regulatory obligations. In its notice, the FCA acknowledged this as well as CBPL’s co-operation with its investigation,” the company said. CBPL also noted that the onboarding of high-risk customers occurred “unintentionally” and represented only 0.34% of the total new customers signed up between October 2020 and October 2023.

Coinbase Global shares were down nearly 2% in U.S. premarket trading following the announcement. The case underscores the ongoing challenges cryptocurrency exchanges face in balancing rapid growth with stringent regulatory compliance, especially in jurisdictions with rigorous financial oversight like the UK.

As the cryptocurrency market continues to expand, the need for robust compliance mechanisms and vigilant regulatory enforcement becomes increasingly critical. This fine serves as a reminder to all crypto entities of the importance of adhering to regulatory agreements and maintaining rigorous controls to prevent financial crimes.