Coinbase has agreed to pay a £50m settlement and a further $50m to improve its compliance management systems after the New York State Department of Financial Services (NYSDFS) found it to have failed in customer background checks.
New York regulators found the crypto firm to have been in violation of anti-money laundering laws as Coinbase allowed customers to sign up for the platform without sufficient background checks.
Coinbase will also be required to pay an additional $50m upon request from the NYSDFS to improve its risk management systems, preventing any potential repeat as well as to safeguard against drug and money trafficking amongst other illegal activities.
The NYSDFS first detected compliance issues surrounding Coinbase during 2020, three years prior to when the crypto exchange gained a licence to operate in New York, where regulators found AML controls had issues which they believed traced back to 2018.
A formal investigation was opened in 2021 as regulators found that Coinbase lacked in customer background checks and failures to follow-up on suspicious activity. The exchange initially hired an independent consultant to oversee its compliance division but regulators believed it to be insufficient in its evidence.
The NYSDFS identifies more than 100,000 suspicious alerts pertaining to customer transactions that were not sufficiently examined nor handled, as Coinbase were also found to have basic KYC checks too.
Adrienne A. Harris, New York State Superintendent of Financial Services, stated: “We found failures that really warranted putting in place an independent monitor rather than wait for a settlement.
“We have been very outspoken about illicit financing concerns in the (crypto) space. It is why our framework holds crypto companies to the same standard as for banks.”
Coinbase has also been under the watchful eye of the Securities and Exchange Commission (SEC), who have been rampant in attempting to handle any illicit crypto activity in recent months.
The SEC initially investigated Coinbase over unregistered securities on its site, as the US regulator has warned other exchanges such as Ripple, that security tokens hold monetary value which fall under SEC supervision.
Gary Gensler, Chair of the SEC, has stated that customer protection is the main incentive when it comes to looking more closely at crypto exchanges.
He spoke last summer: “The public would benefit from investor protection around these various service providers, the exchanges, the lending platforms, and the broker-dealers.
“We at the SEC are working in each of those three fields; exchanges, lending, and the broker-dealers, and talking to industry participants about how to come into compliance, or modify some of that compliance.”