Coinbase agrees to settlement worth $100m with New York regulator

The New York DFS investigation found significant failings in Coinbase’s compliance programme, which violated the New York Banking Law and the DFS virtual currency, money transmitter, transaction monitoring and cyber security regulations

The New York Department of Financial Services (DFS) has ordered cryptocurrency exchange Coinbase to pay a $50m penalty over its 2018-2019 compliance programme and backlogs. 

Coinbase has also committed $50m in compliance programme investments over the next two years.  

The DFS investigation found significant failings in Coinbase’s compliance programme, which violated the New York Banking Law and the DFS virtual currency, money transmitter, transaction monitoring and cyber security regulations. 

These failures made Coinbase’s platform vulnerable to serious criminal conduct, including fraud, possible money laundering and suspected child sexual abuse material-related activity.   

The regulator also said that Coinbase treated customer onboarding requirements as a “simple check-the-box” exercise and failed to conduct appropriate due diligence. 

It was also unable to keep pace with its growth and at one point had a backlog of more than 100,000 unreviewed transaction monitoring alerts.  

An Independent monitor was installed to evaluate the issues. They will continue to work with Coinbase for an additional year. 

Adrienne A Harris, superintendent of financial services the New York DFS, commented: “It is critical that all financial institutions safeguard their systems from bad actors, and the department’s expectations with respect to consumer protection, cybersecurity, and anti-money laundering programmes are just as stringent for cryptocurrency companies as they are for traditional financial services institutions. 

“Coinbase failed to build and maintain a functional compliance programme that could keep pace with its growth. That failure exposed the Coinbase platform to potential criminal activity.” 

The cryptocurrency exchange, founded in 2012, said in a blog post that it has made a number investments over the past two years to address its compliance issues. 

It has built anti-money laundering and sanctions compliance tools, enhanced its transaction monitoring system, developed a customer risk scoring system, built out its enhanced due diligence and launched the Travel Rule Universal Solution Technology solution.   

At a time where crypto is under intense scrutiny, Coinbase said in a statement that it “remains committed to being a leader and role model in the crypto space, and this means partnering with regulators when it comes to compliance and other areas. 

“We have not always been perfect, our goal has always been and will always be to build the most trusted, compliant, and secure crypto exchange in the world.” 

Coinbase received its Bitlicence from NYDFS in 2017, which allowed it to continue operating its virtual currency business in New York. 

Image: Canva  

Josh Poyser Josh Poyser is an editor at FinTech Intel. He has written about fintech for several years and appeared at FinTech Connect 2023 on the 'Unlocking Success: The Art of Fintech PR' panel.