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The New York Department of Financial Services announced Wednesday a $100 million settlement with Coinbase over its failed compliance program.
As an industry premised on privacy and anonymity, cryptocurrency companies have a long history of violating anti-money laundering and “know your customer” laws.Still, Coinbase has established itself as a law-abiding citizen among crowded exchanges, including questionable firms like Binance and imploding firms like FTX. rice field luck The coinbase settlement reveals a growing target that has turned its back on the cryptocurrency moguls, even for those looking to play by the rules.
“DFS is an apex predator when it comes to cryptocurrency regulation,” said Eric Sufer, head of cryptocurrency and fintech operations at Tusks Strategies and former senior counsel to two New York Attorneys General. said.
Unlike other states such as Texas and Alabama that are leading the way in cryptocurrency enforcement, Sufer said New York has comprehensive regulations and experts dedicated to cryptocurrencies. The Attorney General’s Office handles enforcement of unregistered companies, like the Bitfinex and Tether settlements, but DFS can sue New York-licensed companies such as Robinhood.
Coinbase obtained a license from DFS to operate in New York as a cryptocurrency and remittance business in 2017. In 2020, DFS declared Coinbase’s compliance program inadequate. A backlog of 100,000 unreviewed transactions, according to the department.
Coinbase agreed to hire an independent consultant, but it wasn’t enough to meet the agency’s requirements. Regulators have launched a formal investigation into him in 2021. This fact was noted in Coinbase’s 2021 10-K, culminating in the January 4th settlement. Coinbase paid New York State her $50 million fine, and he also agreed to invest $50 million in compliance.
In a company post published on Wednesday, Coinbase Chief Legal Officer Paul Grewal said, “This resolution moves us towards continued improvement, engagement with key regulators, and increased compliance in the crypto space. We see this as an important step in our efforts.”
Regulatory trade-offs
Soufer said that no matter how many headlines the nine-figure settlement made, it would not change Coinbase’s fundamentals or its financial stability.
“Coinbase decided there was long-term value in regulation,” he said. luck“All businesses regulated by DFS understand that there are some trade-offs.”
Due to the nascent nature of cryptocurrencies, Soufer said, even compliant firms are still struggling to find outside vendors and experts who can help provide the necessary expertise and resources. I’m struggling with the KYC law. One example is the recent move by exchanges to complete an audit of their reserves and the reluctance of accounting firms to get involved.
Charlie Cooper, managing director of blockchain company R3 and former Chief of Staff of the Commodity Futures Trading Commission, said: luck Cryptocurrency firms that employ professionals are still at a disadvantage compared to traditional financial firms, which typically have entire departments with decades of associated compliance work.
Even if Coinbase were trying to be DFS compliant, it might not matter to the struggling sector and Coinbase, whose stock has fallen nearly 90% since November 2021.
Cooper said the FTX demise would increase regulators’ interest in the cryptocurrency industry, regardless of whether the bad results were due to fraud or incompetence.
“The reality is that perception can be more important than reality in politics and policymaking,” he said. luck“Crypto is currently suffering from significant cultural problems.”
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