As a seasoned researcher with extensive experience in the financial regulatory landscape, I find the recent enforcement action taken against Coinbase’s UK unit (CBPL) by the Financial Conduct Authority (FCA) particularly disconcerting. The $4.5 million fine imposed on CBPL for repeatedly violating restrictions on providing services to high-risk customers is a stark reminder of the importance of robust financial crime controls, especially in the rapidly evolving crypto space.
The UK division of Coinbase, CB Payments Limited (CBPL), was penalized £3.5 million (approximately $4.5 million) by the Financial Conduct Authority (FCA) in the United Kingdom for consistently disregarding a rule that prohibited the company from catering to risky clients.
Although CBPL doesn’t process cryptocurrency transactions directly for clients, it functions as a “bridge” or “entry point” for trading via other affiliated companies within the Coinbase Group. Nevertheless, CBPL isn’t registered yet in the UK to engage in crypto-related activities.
Breaching Crypto Trading Restrictions
In October 2020, after intensive dialogue with the Financial Conduct Authority (FCA) over doubts about the adequacy of CBPL’s financial crime prevention system, the company agreed to a self-imposed measure (the VREQ). This measure barred CBPL from accepting new high-risk customers until they addressed and rectified the concerns raised by the FCA.
In spite of the imposed limitations, the Financial Conduct Authority (FCA) allegedly reproached CBPL for handling the business of 13,416 potentially risky clients in relation to e-money services, as stated in their official communiqué.
Approximately 31% of our customers deposited around $25 million. Later, they made withdrawals and executed over $226 million worth of crypto transactions using different Coinbase Group companies.
The Financial Conduct Authority (FCA) found that CBPL fell short in several areas while creating, evaluating, and monitoring controls meant to implement the Vendor Risk Questionnaire (VREQ). They failed to consider numerous customer onboarding situations as well.
The agency emphasized that undetected issues in the early surveillance led to major security lapses lasting close to two years.
Weakness in CBPL’s controls
Therese Chambers, the co-head of Enforcement and Market Oversight at the Financial Conduct Authority (FCA), commented on the recent regulatory action against Coinbase Group.
It’s essential for firms facilitating crypto trading, such as CBPL, to acknowledge and address the evident money laundering risks in this sector. Proper financial crime controls are indispensable to mitigate these risks effectively. Unfortunately, CBPL’s controls exhibited significant vulnerabilities, prompting the FCA to impose stringent requirements to rectify these issues. However, despite these mandates, CBPL continued to disregard them.
Chambers issued a caution that the platform might be exploited by criminals to clean their ill-gotten gains.
During this incident, the FCA exercised its regulatory powers under the Electronic Money Regulations 2011 for the first time to enforce compliance.
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2024-07-25 18:28