Cryptocurrency exchange Coinbase has been fined tens of millions of dollars. What was the reason?
The New York Financial Services Department (NYDFS) has reached a $100 million settlement with Coinbase over regulatory compliance issues. The largest US cryptocurrency exchange will pay $50 million in fines and another $50 million will be used as an investment to improve regulatory compliance on its part. At issue is the monitoring of transactions within Coinbase and the procedure for confirming the identities of its customers. We tell you more about what’s going on.
It should be noted that the head of cryptocurrency exchange Coinbase, Brian Armstrong, was quite active at the end of 2022. First of all, he was commenting on what was happening with the FTX trading platform, which went bankrupt amid the improper and previously illegal use of its own users’ funds.
Armstrong used the story to demonstrate the benefits of the trading platform. In particular, he noted that his exchange does not use users’ money and also does not engage in risky transactions, which in the case of FTX was the responsibility of the trading company Alameda Research.
Coinbase chief executive Brian Armstrong
Brian also recommended that the cryptocurrency community should not empathise with FTX founder Sam Bankman-Fried. According to him, it was impossible not to notice the absence of billions of dollars on his own balance sheet, which means Sam was aware of everything that was going on.
By the way, Coinbase analysts ended 2022 on a negative note. They allowed that the new year will not be so attractive for altcoins, because their buyers need time to restore confidence in the market. And we could be talking about quite a serious timeframe here.
What Coinbase was fined for
Department officials said they found “significant problems” in Coinbase’s regulatory compliance program, which violated New York banking law. The breach also affected state regulations regarding virtual currencies, money transfer, transaction monitoring, and cybersecurity.
According to Decrypt’s sources, all of these problems made the exchange vulnerable to criminal activities like fraud, money laundering or drug trafficking, authorities believe. Department Superintendent Adrienne Harris also commented on the news.
It is imperative that all financial institutions protect their systems from fraudsters. Coinbase has failed to create and maintain a functional compliance program that has been able to keep up with the growth of the exchange.
Coinbase CEO Brian Armstrong
NYDFS experts found that Coinbase’s customer identity verification process was more of a formality than a meaningful procedure. In addition, the platform’s suspicious transaction monitoring system has accumulated a significant backlog of more than 100,000 outstanding alerts by the end of 2021. As a result, some transactions flagged by Coinbase were not reviewed until several months after they took place.
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Still, the scale of Coinbase’s troubles is smaller than many other cryptocurrency companies. For example, cryptocurrency payments platform Wyre could be liquidated as early as this month. For now, this information is based on rumours of an email from the company’s CEO Ioannis Giannaros.
It should be noted that Wyre is a fairly popular platform in the cryptocurrency industry. It allows those wishing to purchase digital assets in exchange for fiat currencies, i.e. using bank cards. This option is particularly popular with first-time users who don't want to spend time getting familiar with P2P orders and other such phenomena. However, what is happening suggests that the popularity of the platform leaves much to be desired in the current market conditions.
Two employees of the company, who wished to remain anonymous, said this in an interview with news publication Axios. Giannaros also sent out another letter, which did not clearly state that Wyre would cease operations altogether, but did focus on impending layoffs.
We are still operating, but will be downsizing to plan our next steps.
Crypto trading
Wyre turns ten years old this year. At the peak of its business, it was valued at $1.5 billion – at least that much money Bolt was willing to commit to acquiring Wyre in April last year. However, that agreement was already terminated in September, and the two companies agreed to remain partners.
We believe that a negative outlook for cryptocurrency companies today is a logical scenario. Still, the market traditionally attracts less attention with collapsed rates. Accordingly, this affects both trading volumes and user interest. This means we can assume that this niche trend will not end with Wyre's possible problems.
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