Coinbase shares rise 12% after $100 million settlement with US regulators

Coinbase shares rise 12% after $100 million settlement with US regulators

Cryptocurrency exchange Coinbase has reached an agreement to pay a $50 million penalty to the New York State Department of Financial Services to settle allegations that it allowed customers to open accounts without completing required background checks.

The regulator said Coinbase violated New York Banking Law and New York State Department of Financial Services (DFS) virtual currency, money transmitter, transaction monitoring, and cybersecurity regulations.

According to the agreement, the crypto exchange must also invest $50 million in its compliance program over the next two years.

The $100 bill

In a statement, Superintendent of Financial Services Adrienne A. Harris said the compliance violations exposed the platform to serious criminal activity such as fraud, possible money laundering, suspected child sexual abuse and potential drug trafficking, among other things.

"Coinbase failed to establish and maintain a functioning compliance program that could keep pace with its growth. This failure exposed the Coinbase platform to potential criminal activity, forcing the Department to take immediate action, including installing an independent monitor."

The San Francisco-based platform has been licensed to conduct virtual currency operations and money transfer businesses in New York since 2017. However, after NYDFS conducted an audit and enforcement investigation in early 2022, the company's compliance program failed to keep up with the pace of its business growth.

Coinbase's Bank Secrecy Act/Anti-Money Laundering program, including Know Your Customer/Customer Due Diligence, transaction monitoring system, and suspicious activity reporting, was deemed inadequate. The New York regulator also said the crypto exchange's sanctions compliance systems were unsatisfactory for a financial services provider of its "size and complexity."

Statement from Coinbase

Coinbase has had a brutal year after its trading revenue plunged 50% compared to 2021. The stock is down over 84% year-to-date and is currently trading near $38, despite being pumped by double digits following the deal.

The collapse of Sam Bankman-Fried's crypto empire last year further dragged the industry down and damaged the space's credibility, raising questions about the remaining centralized crypto exchanges.

Paul Grewal, Coinbase's chief legal officer, said the team recognizes that the industry is at a "tipping point" as every move by a prominent player requires intense scrutiny. The company is reportedly cooperating with an NYDFS investigation into its historical compliance program.

While Grewal acknowledged where Coinbase fell short, he maintained that the company “welcomes opportunities to improve its programs.”

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