Regulators reported that the crypto exchange had a backlog of 100,000 alerts about potentially suspicious customer transactions.
The New York State Department of Financial Services, or NYDFS, has reached an agreement with Coinbase following an investigation into the cryptocurrency exchange’s compliance program.
In a Jan. 4 announcement, the NYDFS said Coinbase will pay a $50-million fine in response to violations of New York’s financial services and banking laws, as well as invest $50 million to correct its compliance program. According to the financial regulator, the crypto exchange had many compliance “deficiencies” related to anti-money laundering (AML) requirements. The NYDFS reported issues with Coinbase’s process for onboarding users and monitoring transactions.
“Coinbase has acknowledged its failures in this respect to the Department,” said the NYDFS. “Furthermore, certain of these issues have been known to Coinbase since at least 2018, flagged through both internal assessments and external reviews, including examinations conducted by the Department. Although Coinbase has worked to correct these issues, its progress has been slow: progress in certain areas did not occur until recently, and work remains outstanding to the present.”
New York regulators reported that Coinbase allowed customers to open accounts without conducting sufficient background checks — a violation of AML requirements under the state’s licensing regime. According to the regulator, the growth in the number of users at the crypto exchange had contributed to a “failure to keep pace” with monitoring suspicious transactions, citing a backlog of more than 100,000 alerts.
“We’re proud of our commitment to compliance, but we are also willing to acknowledge where we have fallen short, including by paying penalties & working hard to fix issues,” said Coinbase chief legal officer Paul Grewal.
Today @nydfs announced that we have reached an agreement to resolve their investigation, which was focused on historical compliance program issues at @coinbase. ⬇️ and details here: https://t.co/omWduduEBm
— paulgrewal.eth (@iampaulgrewal) January 4, 2023
Related: Coinbase report shows dramatic increase in law enforcement enquiries worldwide
The NYDFS has been requiring crypto firms to obtain a BitLicense in order to operate in the state since 2015. Coinbase first received its license in 2017. Policymakers have imposed different requirements on the crypto exchange and others under the regulatory regime since its inception, including annual assessment fees and pushes to abandon the program entirely.