British regulators on Thursday fined the UK arm of cryptocurrency exchange Coinbase £3.5 million ($4.5 million) for violating a voluntary agreement to stop the exchange from accepting “high-risk customers.”
Coinbase Global The stock was down about 3.5% to $236.59 as of 9:45 a.m.
CB Payments Limited (CBPL) is part of the Coinbase Group, which operates a global cryptocurrency trading platform.
CBPL entered into a voluntary agreement with the UK’s Financial Conduct Authority (FCA) in October 2020, accepting restrictions that prohibit it from accepting new customers that the regulator considers high risk. It also prohibits CBPL from providing services to those customers.
However, according to the FCA, CBPL breached its agreement by enrolling and servicing 13,416 so-called high-risk customers. Around 31% of these people deposited around $24.9 million, the UK regulator added. These funds were then used to carry out withdrawals and cryptocurrency transactions through other Coinbase entities, totalling around $226 million.
“This requirement was necessary because there were significant weaknesses in CBPL’s controls which the FCA highlighted. Yet CBPL repeatedly breached this requirement,” said Therese Chambers, co-executive director of enforcement and market oversight at the FCA.
“This has increased the risk that criminals can use CBPL to launder the proceeds of their crimes. We will not tolerate such laxity that puts the integrity of our markets at risk.”
In a statement, Coinbase said it takes the FCA’s findings, as well as its “broader regulatory compliance”, very seriously.
“CBPL continues to actively strengthen its controls to ensure it complies with its regulatory obligations. The FCA acknowledged this in its notice and acknowledged that CBPL has cooperated with its investigation,” it added.
CBPL said it “inadvertently enrolled” some customers classified as high-risk between Oct. 30, 2020 and Oct. 1, 2023, representing 0.34% of the total new customers enrolled by the department.