Coinbase’s UK Arm Fined £3.5M by FCA for Breaching Financial Crime Regulations

Coinbase’s UK branch, CB Payments Limited (CBPL), has been fined £3.5 million by the UK’s Financial Conduct Authority (FCA) for breaching financial crime regulations. The fine is a result of CBPL’s failure to comply with a previous agreement with the FCA to prevent the onboarding of high-risk customers. This is the first time the FCA has taken enforcement action under the Electronic Money Regulations 2011.

CBPL, an e-money institution and payments processor within the Coinbase Group, entered into an agreement with the FCA in October 2020. This agreement restricted CBPL from onboarding high-risk customers while it worked on improving its financial crime controls. Despite this, the FCA found that CBPL had onboarded 13,416 high-risk customers, 31% of whom deposited a total of $24.9 million. These funds were then used for withdrawals and crypto transactions worth $226 million through other Coinbase entities. The FCA criticized CBPL for lacking due skill, care, and diligence in adhering to the agreement, allowing these high-risk transactions to occur over a three-year period, thus posing a potential risk of money laundering.

In response to the fine, CBPL acknowledged the FCA’s findings and emphasized its commitment to regulatory compliance, stating that it is working to enhance its control mechanisms to prevent future breaches. Following the news, Coinbase’s stock price fell by 3.5%, though this decline may also be influenced by broader market conditions rather than specific investor concerns.

This enforcement action is notable as it marks the first time the FCA has taken such steps against a cryptocurrency company. It raises significant questions about how other crypto firms will respond to increased scrutiny. The FCA’s decision underscores a broader intention to hold cryptocurrency firms accountable for compliance obligations. This fine serves as a clear warning that firms failing to comply with financial crime controls will face strict enforcement action. Consequently, other cryptocurrency exchanges operating in the UK may need to reassess their compliance frameworks to avoid similar penalties.