Coinbase Global, the largest US cryptocurrency exchange, said its US unit reached a $US100 million ($147 million) settlement with New York regulators for letting customers open accounts with insufficient background checks.
The settlement with the New York State Department of Financial Services requires the firm to pay a $US50 million fine and spend $US50 million to improve compliance over two years, Coinbase said on Wednesday.
“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth,” Adrienne A. Harris, New York’s superintendent of financial services, said. During the relevant period, Coinbase treated customer onboarding requirements as a “simple check-the-box exercise and failed to conduct appropriate due diligence”, the department said.
Adrienne A. Harris, superintendent of the New York State Department of Financial Services. Bloomberg
In one instance, Coinbase onboarded a customer who was criminally charged with crimes related to child sexual abuse material in the 1990s and allowed the customer to engage in suspicious transactions for more than two years before closing the accounts, the department said. In another example, Coinbase let an individual purporting to be an employee of a company open an account on behalf of that firm without authorisation, resulting in a theft of more than $US150 million, which was later recovered.
By late 2021, Coinbase failed to keep pace with a growing backlog of more than 100,000 unreviewed transaction-monitoring alerts, the department said.
“Coinbase has taken substantial measures to address these historical shortcomings and remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance,” said Paul Grewal, Coinbase’s chief legal officer.
The crypto industry has grappled with increasing regulatory pressure over enforcing know-your-customer rules and anti-money laundering programs. Binance, the biggest global crypto exchange, and FTX, its now-bankrupt rival, both faced US investigations over money laundering, Bloomberg reported earlier.
New York requires companies engaging in crypto services to obtain its BitLicense to operate in the state, which allows its regulators to conduct examinations and oversight. In August, the Department of Financial Services fined Robinhood Markets’ crypto arm $US30 million for violations of anti-money laundering and other rules.
Coinbase has disclosed the investigation by New York relating to its compliance program in its 2021 annual filing. “The size of the settlement is not significant in context of” the more than $5 billion cash on its balance sheet, but will “likely pressure the company to continue to increase investments and ongoing expenses” related to compliance, KBW analysts including Kyle Voigt wrote in a note on Wednesday.
Shares of Coinbase jumped 11 per cent to $US37.41 in morning trade in New York. The stock tumbled 86 per cent last year. Bitcoin, the largest cryptocurrency by market value, dropped 64 per cent in 2022.
– With assistance from Matt Turner.
©2023 Bloomberg L.P.
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