Key points to remember
- Coinbase has reached a $100 million settlement with the New York Department of Financial Services over its compliance program.
- The exchange was fined $50 million and agreed to invest an additional $50 million in updating its compliance system.
- The NYDFS primarily blamed a weak compliance structure and an increase in platform adoption for the exchange’s failures.
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Coinbase found itself overwhelmed by the platform’s frenzied adoption in 2020 and 2021, the NYDFS said in its filing today. This has prevented the exchange from maintaining a robust compliance system.
Months late
Coinbase has entered into an agreement with the New York Department of Financial Services.
According to deposit, the US-based crypto exchange agreed to a $100 million settlement with the regulator over its compliance program, which the NYDFS found lacking in several respects. Coinbase will pay a $50 million fine and has pledged to invest an additional $50 million to update its compliance program.
The NYDFS said in its report that it found significant deficiencies in Coinbase’s compliance mechanisms, including its KYC processes, transaction monitoring system, OFAC screening program, and AML risk assessments.
While acknowledging that Coinbase had made efforts to remedy the situation, the regulator criticized the company for its slow progress, which it partially blamed on an inadequate compliance structure that could not meet Coinbase’s needs. “At the end of 2021, Coinbase had a backlog of unexamined transaction monitoring alerts (of) over 100,000 (many of which were months old), and the backlog of customers requiring enhanced due diligence (“EDD “) exceeded 14,000.”
Another reason for Coinbase’s compliance struggles was the platform’s increased adoption in 2020 and 2021. NYDFS noted that the exchange saw 15 times more customer sign-ups in May 2021 — and 25 times for transactions in November 2021 – than in January 2020. According to the regulator, Coinbase simply lacked the personnel, resources and tools to keep pace.
Coinbase is still under investigation by the Securities and Exchange Commission on the sale of alleged securities. He was also subpoenaed about its listing process and various staking products.
Disclaimer: At the time of writing this article, the author of this article owned BTC, ETH, and several other crypto assets.
