A digital currency exchange, recently reached a $100 million settlement with the new york department of financial services (nydfs). the settlement includes a $50 million penalty and an additional $50 million investment to bolster coinbase’s compliance abilities. the nydfs found “significant failures” in coinbase’s compliance program, which left the company vulnerable to criminal conduct.
Violations of new york banking law and state regulations regarding virtual currencies, money transmitting, transaction monitoring, and cybersecurity occurred over the course of 2021 and early 2022. coinbase had a substantial backlog in its system for monitoring suspicious transactions that totaled over 100,000 unreviewed alerts by late 2021. in early 2022, an independent monitor was installed to review coinbase’s compliance program and address issues with the company’s practices. the independent monitor will continue to work with coinbase as a condition of the settlement for an additional year.
Nydfs found that coinbase had failed to build and maintain a functional compliance program that could keep pace with its growth. coinbase’s compliance with know your customer and customer due diligence requirements was inadequate, and rules used to verify the identity of people who engage with its platform were treated as a “simple check-the-box exercise”. additionally, some transactions flagged by coinbase weren’t reviewed until months after they took place. coinbase has begun to address many of the issues found with its compliance program and is working to revise its practices.