key takeaways
- Coinbase has reached a $100 million settlement with the New York Department of Financial Services over its compliance program.
- The exchange was fined $50 million and agreed to invest an additional $50 million to upgrade its compliance system.
- The NYDFS mainly blamed a weak compliance structure and a rise in platform adoption for the exchange’s failures.
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Coinbase was overwhelmed by the frenetic adoption of the platform in 2020 and 2021, the NYDFS claimed in its filing today. This resulted in the exchange being unable to maintain a strong compliance system.
Months of order book
Coinbase reached an agreement with the New York Department of Financial Services.
According to the presentation, the US-based crypto exchange agreed to a $100 million settlement with the regulator over its compliance program, which the NYDFS found wanting in several respects. Coinbase will pay a $50 million penalty and has pledged to invest an additional $50 million to accelerate its compliance program.
The NYDFS indicated in its report that it had found significant deficiencies in Coinbase’s compliance mechanics, including its KYC processes, its Transaction Monitoring System, its OFAC screening program, and its AML risk assessments.
While acknowledging that Coinbase had made efforts to remedy the situation, the regulator criticized the company for its slow progress, which it attributed in part to an inadequate compliance structure that could not handle Coinbase’s needs. “At the end of 2021, Coinbase had a backlog of unreviewed transaction monitoring alerts [of] more than 100,000 (many of which were months old), and the backlog of customers requiring Enhanced Due Diligence (“EDD”) exceeded 14,000.”
Another reason for Coinbase’s compliance difficulties was increased adoption of the platform in 2020 and 2021. The NYDFS noted that the exchange recorded 15 times as many customer registrations in May 2021, and 25 times as many for transactions in November 2021, than in January 2020. According to the regulator, Coinbase simply lacked the necessary staff, resources, and tools to keep up.
Coinbase is still under investigation by the Securities and Exchange Commission on the sale of purported securities. has also been subpoenas delivered about their listing process and various engagement products.
Disclaimer: At the time of writing, the author of this article owned BTC, ETH, and various other crypto assets.
