CB Payments Ltd. (CBPL), an e-money institution affiliated with cryptocurrency exchange Coinbase (COIN), has been sanctioned with a substantial penalty exceeding £3.5 million ($4.5 million) by the Financial Conduct Authority (FCA). This fine pertains to deficiencies in their protocols meant to avert the onboarding of clients categorized as high-risk.

Situated in London and regulated by the FCA, CBPL itself does not directly offer cryptocurrency services but functions as an intermediary, enabling clients to engage in crypto trading within the broader Coinbase conglomerate.

The FCA’s scrutiny of CBPL’s financial crime controls commenced in February 2020 following an on-site inspection. This led to a voluntary agreement wherein CBPL ceased onboarding new high-risk clients to rectify identified issues. However, subsequent investigations revealed that despite these restrictions, CBPL had onboarded and rendered e-money services to 13,416 high-risk clients. Notably, approximately 31% of these clients deposited around $24.9 million, which was subsequently utilized for withdrawals and the execution of multiple cryptoasset transactions across various Coinbase Group entities, amounting to roughly $226 million.

The FCA attributed these breaches to CBPL’s inadequate proficiency in overseeing the controls designed to enforce the agreement, resulting in nearly two years of undetected infractions.

“Coinbase remains unwavering in its commitment to regulatory compliance, collaborating closely with regulators to uphold high standards,” stated the company in a blog post. “We acknowledge our shortcomings and are dedicated to implementing improvements, as demonstrated in this instance.”