Coinbase (COIN) will pay a $50 million fine to the New York State Department of Financial Services (NYDFS) to settle charges it let users open accounts without having conducted sufficient background checks. The regulators found that the crypto exchange's policies were in violation of anti-money-laundering laws.
The settlement will also require Coinbase to invest $50 million over the next two years to bolster its compliance program.
“Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth," wrote Superintendent of Financial Services Adrienne A. Harris in a press release. "That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor.”
Coinbase had been licensed to operate a virtual currency and money transmitting business in New York since 2017. After the NYDFS found deficiencies in Coinbase’s know your customer (KYC) and transaction monitoring policies, the regulator installed an independent monitor in early 2022 to work with Coinbase to fix the problems.
Under the terms of the agreement, the independent monitor will continue to work with Coinbase for another year, with this period subject to extension at the NYDFS' discretion.
"Today Coinbase and NYDFS have come to an agreement to settle a NYDFS investigation, disclosed in our 2021 annual 10K filing, into our historical compliance program," wrote Paul Grewal, Coinbase's chief legal officer, in an email to CoinDesk. "Coinbase has taken substantial measures to address these historical shortcomings and remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance."
The New York Times initially reported on the settlement.
Coinbase shares were up almost 5% in early trading on Wednesday.
UPDATE (Jan. 4, 14:38 UTC): Removed "report" from headline, added statement from Coinbase and share price move.
UPDATE (Jan. 4, 15:38 UTC): Added statement from NYDFS and additional background information.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.