ResearchAugust 5, 2024

Coinbase Unit Fined $4.5M in UK for Offering Crypto Trading to High-Risk Investors

The UK’s FCA alleged CB Payments’ repeated breaches of a voluntary requirement went undiscovered for almost two years.

Reported by Michael Katz

The U.K.’s Financial Conduct Authority fined Coinbase-owned CB Payments more than 3.5 million pounds ($4.5 million) for repeatedly breaching a voluntary requirement intended to prevent the firm from offering services to high-risk customers.

While CB Payments does not engage in cryptocurrency asset transactions for customers, it provides a gateway for customers to trade crypto assets via other entities within the Coinbase Group, according to the FCA. The regulator also noted that the Coinbase unit is not currently registered to provide crypto asset services in the U.K.

According to the FCA, CB Payments agreed to the voluntary requirement in 2020, following “significant engagement” with the regulator over its concerns about the effectiveness of CB Payments’ financial crime control framework. According to the FCA, the purpose of the voluntary requirement was to prevent the Coinbase subsidiary 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 stated, adding that approximately 31% of those clients deposited nearly $25 million. It also alleged that the funds were used to make withdrawals and then execute crypto asset transactions worth a total of approximately $226 million through other Coinbase Group entities.

The breaches were the result of CBPL’s lack of due skill, care and diligence in the design, testing, implementation and monitoring of the controls put in place to ensure that the VREQ was effective,” the FCA stated. “This included failing to consider all of the various ways in which customers might be onboarded when designing the controls. Because of inadequacies in the initial monitoring of compliance with the VREQ, repeated and material breaches went undiscovered for almost two years.”

According to the regulator, the fine is the first FCA enforcement action using powers it was granted under the Electronic Money Regulations enacted in 2011. It also stated that because CB Payments agreed to resolve the matter, it qualified for a 30% discount on the fine, which would have otherwise been about 5 million pounds.

Coinbase did not immediately respond to a request for comment.