Coinbase stock climbed 7% Wednesday morning following news that the exchange has agreed to settle for $100 million with New York regulators in response to anti-money laundering and compliance violations.
The New York State Department of Financial Services found that Coinbase had violated anti-money laundering laws by allowing customers to open accounts without complete background checks, resulting in a $50 million fine. The exchange is also required to invest an additional $50 million over two years to address “serious deficiencies” in its compliance practices, the filing stated.
After losing nearly 90% in 2022, Coinbase stock has steadily inched back into the green so far in 2023. COIN was trading more than 6% higher Wednesday at 10:30 am ET.
The regulator alleged that Coinbase’s insufficient background checks “resulted in suspicious or unlawful conduct being facilitated through Coinbase’s platform,” the filing said. The department found that a charged criminal and an individual using a false identity were able to create Coinbase accounts and potentially use the exchange’s services to conduct illicit activities.
“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,” Paul Grewal, Coinbase’s chief legal officer, told Blockworks via email. “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 department noted that in both instances, Coinbase was cooperative with investigators and took appropriate action to recover the funds or close the accounts. Even so, the exchange’s existing system for detecting this type of activity is no longer sufficient, the regulator said.
“Coinbase’s business and customer base have grown exponentially since it was licensed by the Department, but Coinbase was unable to keep pace with the growth in the volume of alerts generated by its [transaction monitoring systems],” the filing said.
Since its public market debut in 2021, Coinbase has faced a variety of regulatory hurdles, sinking shares more than 90%. In September 2021, the US Securities and Exchange Commission effectively shut down Coinbase’s lending program, Coinbase Lend, by declaring such products unregistered security offerings.
In July 2022, COIN plunged 14% after the SEC classified nine tokens listed on Coinbase as securities in a civil complaint. The agency later subpoenaed the exchange to investigate how it classifies tokens.
As the exchange continues to battle regulators over how cryptocurrencies are classified, executives have doubled down on promises that Coinbase will diversify its revenue streams and thrive even as a selloff in crypto markets sinks trading.
“One thing we’re doing is shifting more of our revenue over time, away from trading fees to what we call subscription and services,” Coinbase CEO Brian Armstrong said in a CNBC interview in 2022, adding that those services grew to around an 18% share of the exchange’s total revenue.
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