Coinbase agrees to $100M settlement with New York regulators

Coinbase has agreed to pay a $50 million fine to New York state and spend another $50 million to bolster its compliance systems after a probe by the state's Department of Financial Services found "significant failings" in the cryptocurrency exchange's anti-money laundering program.

The DFS said in a press release Wednesday that its investigation — disclosed by Coinbase in its 2021 annual 10K filing — found the exchange's Transaction Monitoring System was inadequate for its size, resulting in a backlog of alerts that prevented the platform from being able to report suspicious activity in a timely way as required by law.

Coinbase received its BitLicense from the New York DFS in 2017, and the agency said it discovered the compliance issues in an examination of the platform. The findings of the subsequent investigation caused the regulator to install an Independent Monitor at Coinbase to help fix the issues, who will remain at the crypto exchange for another year.

"It is critical that all financial institutions safeguard their systems from bad actors, and the Department’s expectations with respect to consumer protection, cybersecurity, and anti-money laundering programs are just as stringent for cryptocurrency companies as they are for traditional financial services institutions," DFS Superintendent Adrienne Harris said in a statement. 

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"Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth," Harris continued. "That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor." 

The announcement noted that Coinbase "has begun to remediate many of the referenced issues and build a more effective and robust compliance program" under the supervision of the department and its independent monitor.

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"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," Coinbase chief legal officer Paul Grewal told FOX Business in an emailed statement. "We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers can feel safe and protected while using our platforms."  

The settlement comes as the crypto industry is under the microscope following the collapse of what was the world's second-largest exchange, FTX, which resulted in billions of dollars in losses to an estimated million customers. Grewal acknowledged as much in a blog post following the DFS's announcement.

"We recognize that the crypto industry is at an inflection point right now and that every public move by a crypto company will receive intense scrutiny," he wrote. "We believe that New York — and the broader industry — needs more crypto players committed to compliance and working with regulators. That is one of the reasons why we knew it was important to bring this matter to a conclusion, even though it is never the type of agreement reached lightly."

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