Coinbase’s CB Payments unit fined £3.5m by FCA

The UK’s Financial Conduct Authority (FCA) has fined CB Payments Ltd (CBPL), a UK-based subsidiary of cryptocurrency exchange Coinbase, £3,503,546 million for allegedly “repeatedly breaching a requirement that prevented the firm from offering services to high-risk customers”.

Coinbase’s CBPL fined £3.5 million by the FCA

CBPL has been authorised as an e-money institution by the FCA since 2017. The FCA says the firm “does not undertake cryptoasset transactions for customers but it acts as a gateway for customers to trade cryptoassets via other entities within the Coinbase Group”.

The regulator claims that in 2020, during a visit to CBPL, it found “significant weaknesses and gaps” in the fintech’s financial crime control framework.

Subsequently, the company agreed to a voluntary requirement (VREQ) which “prevented CBPL from taking on new high-risk customers while it addressed issues with its framework”.

“Despite the restrictions in place, CBPL onboarded and/or provided e-money services to 13,416 high-risk customers,” the FCA writes.

In a statement, Coinbase says CBPL “unintentionally onboarded some customers between October 30, 2020, and October 1, 2023, (representing 0.34% of customers on-boarded) who were classified as high-risk under the terms of the VREQ. This led to the FCA’s investigation and subsequent action.”

According to the UK regulator, around 31% of these customers deposited a total of around $24.9 million. It says these funds “were used to make withdrawals and then execute multiple cryptoasset transactions via other Coinbase Group entities, totalling approximately USD $226 million”.

Commenting on the findings, the FCA writes: “The Authority considers that CBPL’s failings in relation to the controls that it put in place to comply with the CBPL VREQ were serious and persistent. The failings significantly increased the risk that financial crime might be facilitated by the firm at a time when the Authority had informed CBPL that its systems and controls were not fully effective and required remediation.”

CBPL agreed to resolve the matter and qualified for a 30% discount on its fine. The regulator also notes that CBPL “cooperated with the Authority throughout the course of its investigation”, adding that it “acknowledges the Firm’s commitment to ensuring that it has an effective financial crime framework in place”.

Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, says: “The money laundering risks associated with crypto are obvious and firms must take them seriously. Firms like CBPL that enable crypto trading need to have strong financial crime controls. 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.”

Coinbase says in its statement: “We take the FCA’s findings and our broader regulatory compliance very seriously and CBPL continues to proactively enhance its controls to ensure compliance with its regulatory obligations.”

The exchange adds: “Coinbase remains committed to high standards of regulatory compliance, and this means partnering with regulators when it comes to compliance and other areas. We are always willing to acknowledge when we fall short, and to make improvements – which is what we have done here.”