The UK"s Financial Conduct Authority (FCA) has used the Electronic Money Regulations 2011 powers for the first time in history to fine CB Payments Limited (CBPL), a Coinbase subsidiary, for offering services to high-risk customers.
The regulator said it had fined the subsidiary £3,503,546 for repeatedly breaching rules that prevented it from offering services to high-risk customers. Specifically, CBPL onboarded 13,416 high-risk customers to trade crypto assets via other Coinbase Group entities and processed around $24.9 million in deposits from a third of those high-risk customers.
According to the FCA, these funds were used to make withdrawals and execute multiple transactions on other Coinbase Group entities totaling around $226 million.
Commenting on the decision to fine the company, Therese Chambers, joint executive Director of Enforcement and Market Oversight at the FCA, said:
"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."
The FCA said that the breaches of the voluntary requirement (VREQ) that CBPL entered into in October 2020 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 said that these breaches went almost undiscovered for two years due to the inadequacies in the initial monitoring and compliance with the VREQ on CBPL"s part. The FCA said that CBPL agreed to resolve the matter and has qualified for a 30% discount on its fine.