Coinbase UK unit fined $4.5 million for violating ban on high-risk customers

Coinbase’s UK unit, CB Payments Limited (CBPL), was fined $4.5 million by the UK’s financial regulator, the Financial Conduct Authority (FCA), for repeatedly violating a requirement that prevented the ‘company provide services to high-risk clients.

Although CBPL does not handle crypto transactions for customers, it serves as a “gateway” for trading through other Coinbase group entities. However, CBPL is not currently registered to carry out cryptographic activities in the UK.

Violating crypto trading restrictions

In October 2020, following a significant engagement with the FCA over concerns about the effectiveness of CBPL’s financial crime control framework, the firm entered into a voluntary requirement (the VREQ). It restricted CBPL from taking on new high-risk customers until the framework issues were resolved.

Despite these restrictions, the financial regulator accused CBPL of engaging as well as providing e-money services to 13,416 high-risk customers, according to the FCA’s official press release.

About 31% of these customers deposited approximately $25 million. This amount was then used for withdrawals and to execute multiple crypto transactions through other Coinbase Group entities, totaling approximately $226 million.

The FCA reported that the breaches were the result of insufficient skill, care and diligence by CBPL to develop, test and monitor controls designed to enforce the VREQ. This also included failure to consider various customer onboarding scenarios.

The agency further noted that flaws in initial monitoring allowed significant breaches to go unnoticed for nearly two years.

Weakness in CBPL controls

Commenting on the latest enforcement action against Coinbase Group entity, Therese Chambers, FCA’s Joint Chief Executive of Market Enforcement and Supervision, said:

“The money laundering risks associated with crypto are obvious and should be taken seriously by companies. Companies like CBPL that allow cryptocurrency trading must have strong financial crime controls. CBPL’s controls had significant weaknesses and so the FCA said, that’s why the requirements were needed. CPBL, however, repeatedly breached those requirements.”

Chambers also warned of the increased risk that criminals could take advantage of the platform to launder the proceeds of crime.

Meanwhile, this enforcement action was taken under the Electronic Money Regulations 2011, which marked the FCA’s first use of these enforcement powers.

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