The largest digital asset exchange in the United States has agreed to pay a $50 million fine and invest $50 million in compliance measures after the New York regulator discovered serious shortcomings in Coinbase’s compliance.
Coinbase Settles with NYDFS for $100 Million.
During an assessment and subsequent enforcement investigation, the NYDFS determined that Coinbase’s Know Your Customer and Customer Due Diligence (KYC/CDD) program was immature and inadequate in design and implementation. The regulators noted that Coinbase only needed users to tick a few boxes for KYC information and failed to do adequate due diligence.
The company needed help to keep up with the large volume of warnings from its Transaction Monitoring System (TMS) due to its rapid growth to 108 million verified members. The authorities determined that this resulted in a backlog of over 100,000 unreviewed TMS alerts by the end of 2021. As required by law, Coinbase failed to promptly investigate and report suspected activities.
The NYDFS stated that Coinbase was vulnerable to illegal behaviour such as fraud, money laundering, suspected child sexual abuse, material-related conduct, and probable narcotics trafficking due to its shortcomings.
Coinbase chief legal officer Paul Grewal explained that the exchange always ensures compliance commitment and acknowledges the need for improvement.
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. In this case, we’ll be paying a $50m penalty.
— paulgrewal.eth (@iampaulgrewal) January 4, 2023
Coinbase Stock Price Jumps 12%
After the announcement, the share price of COIN on the Nasdaq Composite increased by nearly 12% to $37.33.
The price increase of COIN is likely attributable to investors now having a better understanding of the company’s regulatory standing. In a late 2021 SEC filing, Coinbase identified the NYDFS investigation as a potential risk to its company, and today’stoday’s announcement from the regulator brings this matter to a closure.
The firm, meanwhile, is still the subject of an SEC inquiry. The SEC is investigating whether the exchange permitted Americans to trade digital assets that should have been registered as securities.