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Coinbase’s CBPL Fined $4.5M by UK Regulator for Breaching Customer Regulations

2024/07/26By:

 

The Financial Conduct Authority (FCA) has imposed a fine of £3,503,546 on CB Payments Limited (CBPL), a subsidiary of the Coinbase Group, for repeatedly breaching a restriction that prohibited the company from providing services to high-risk customers.

This marks the first instance where the FCA has enforced action under the Electronic Money Regulations of 2011.

CBPL serves as a gateway for customers to trade crypto assets through other entities within the Coinbase Group.  However, it does not engage in crypto asset transactions for customers and is not registered to carry out crypto asset activities in the UK.

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Coinbase UK Repeated Breaches of Financial Crime Controls

In October 2020, CB Payments Limited (CBPL), a subsidiary of the Coinbase Group, entered into a voluntary requirement (VREQ) with the Financial Conduct Authority (FCA) to prevent it from accepting new high-risk customers until concerns about its financial crime control framework were addressed.
However, despite these restrictions, CBPL onboarded and/or provided e-money services to 13,416 high-risk customers, with approximately 31% of these customers depositing around USD 24.9 million. These funds were later used to execute multiple crypto asset transactions via other Coinbase Group entities, totaling approximately USD 226 million.
The FCA’s investigation found significant weaknesses in CBPL’s controls, stating“CBPL’s controls had significant weaknesses, and the FCA told it so, which is why the requirements were needed.
However, CBPL repeatedly breached those requirements.” The FCA’s investigation revealed that the breaches resulted from CBPL’s “lack of due skill, care, and diligence in the design, testing, implementation, and monitoring of the controls.”
The FCA claimed that CBPL failed to consider all potential methods of customer onboarding when designing these controls, resulting in inadequacies in monitoring compliance with the VREQ. Consequently, repeated and material breaches went undiscovered for nearly two years.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, emphasized the severity of the breaches, stating, “This increased the risk that criminals could use CBPL to launder the proceeds of crime. We will not tolerate such laxity, which jeopardizes the integrity of our markets.”
As a result of these violations, the FCA imposed a fine of £3.5 million ($4.5 million) on Coinbase’s UK subsidiary.

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FCA Fines Coinbase to Sending Strong Warning to Financial Sector

The regulator emphasized that it would not tolerate such negligence, which poses a threat to the integrity of financial markets.

The purpose of the fine is to convey a strong message to other financial institutions about the importance of maintaining robust compliance systems and adhering to regulatory standards.

In response to the fine, Coinbase stated that it takes the FCA’s findings and its broader regulatory compliance very seriously.

The company assured that CBPL is actively enhancing its controls to ensure compliance with regulatory requirements and highlighted the FCA’s recognition of CBPL’s cooperation during the investigation.

CBPL agreed to resolve the matter and, as a result, received a 30% discount on the fine.

CBPL also mentioned that it unintentionally onboarded some high-risk customers between October 30, 2020, and October 1, 2023, which accounted for 0.34% of the unit’s overall new customer sign-ups.

Following this news, Coinbase Global shares experienced a nearly 2% decline in U.S. premarket trading.

Recently, Coinbase has faced a series of controversies, including a recent series of impersonation scams that resulted in significant financial losses for at least four users.

Scammers employed sophisticated social engineering tactics, pretending to be Coinbase representatives to deceive victims into divulging sensitive financial information. One victim lost $1.7 million in cryptocurrency.

The scammers sent fraudulent emails claiming unauthorized transactions and instructed victims to enter their seed phrases on fake websites, granting partial access to their wallets.

Reports indicate that the attackers may have used information leaked from CoinTracker’s email service provider database in 2022.

Other users have reported similar scams, with fake Coinbase representatives attempting to manipulate them into revealing passwords and account details.

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