Coinbase strikes $100 million settlement with NYDFS
Illustration: Sarah Grillo/Axios
Publicly traded crypto exchange Coinbase agreed to a $100 million settlement with the New York Department of Financial Services (NYDFS) after the agency found deficiencies in its compliance program dating to 2018.
Why it matters: With the collapse of FTX and other crypto exchanges, regulatory agencies will no doubt be looking closely at firms in the sector.
Driving the news: Coinbase agreed to a $50 million fine and committed to investing $50 million to improve its compliance program as part of the settlement.
Of note: In a joint statement Tuesday, the Fed, OCC and the FDIC warned of risks associated with digital assets, including the lack of maturity in crypto business' governance structures.
Context: The agency’s look into Coinbase was initially spurred by a safety and soundness investigation in 2020 as part of NYDFS’ routine oversight of the exchange.
- The agency says it found “serious deficiencies” in Coinbase’s compliance function, which included its anti-money-laundering and Office of Foreign Assets Control (OFAC) sanctions programs.
- Coinbase hired an independent consultant to assess its compliance program and provide recommendations, after which Coinbase adopted a remediation plan to improve the function.
What they found: NYDFS says that during the period in question, the compliance program failed to keep up with Coinbase’s business growth and was overwhelmed with a backlog of 100,000-plus unreviewed transaction monitoring alerts.
- In particular, it claims Coinbase’s “know your customer” (KYC) program was immature and inadequate, doing the bare minimum to verify customer due diligence.
- Coinbase also failed to sufficiently monitor customer transactions to address suspicious activity, the agency says.
What we’re watching: NYDFS is not the only agency to investigate Coinbase’s business practices. In its August earnings filing, the firm said it had also received investigative requests from the SEC.
