The UK financial regulator FCA has announced that it has fined CB Payments Limited (CBPL) £3,503,546 for repeatedly breaching a requirement that prevented the company from offering services to high-risk customers.
CBPL is part of the Coinbase Group, which operates a prominent cryptocurrency trading platform that is accessible globally. CBPL does not undertake cryptocurrency transactions for clients, but acts as a gateway for clients to trade cryptocurrencies through other entities within the US-based Coinbase Group. CBPL is not currently registered to undertake cryptocurrency activities in the UK.
The company introduced a voluntary requirement (the VREQ) in October 2020, which followed significant engagement with the FCA regarding concerns about the effectiveness of CBPL’s financial crime control framework. VREQ prevented CBPL from taking on new high-risk customers while dealing with issues with its framework.
Despite the restrictions in place, CBPL has integrated and/or provided e-money services to 13,416 high-risk customers. About 31 percent of these customers deposited about US$24.9 million. These funds were used to make withdrawals and then execute multiple cryptocurrency transactions through other Coinbase Group entities totaling approximately US$226 million.
The FCA said the breaches were a result of CBPL’s lack of skill, care and diligence in designing, testing, implementing and monitoring the controls put in place to ensure the VREQ was effective. This included a failure to consider all the various ways in which customers might be integrated when designing the controls. Due to inadequacies in the initial monitoring of VREQ compliance, repeated and material violations remained undetected for nearly two years.
Therese Chambers, Joint Executive Director of Market Enforcement and Supervision at the FCA said:
“The money laundering risks associated with crypto are obvious and companies need to take them seriously. Companies like CBPL that allow cryptocurrency transactions must have strong financial crime controls. CBPL’s controls had significant weaknesses and the FCA said so, which is why the requirements were needed. However, CPBL repeatedly violated these requirements.
“This has increased the risk of criminals using CBPL to launder proceeds of crime. We will not tolerate such laxity, which jeopardizes the integrity of our markets.”
Today’s action was taken under the Electronic Money Regulations 2011. This is the first time the FCA has taken enforcement action using these powers. The company has agreed to resolve the issue and is eligible for a 30% discount on its fine.