Coinbase Europe Fined €21.5 Million for Ineffective Transaction Monitoring
Ireland’s Central Bank has imposed a significant fine of €21.5 million on Coinbase Europe, a subsidiary of the popular cryptocurrency exchange Coinbase, for failing to monitor transactions worth approximately €173 billion due to data configuration errors in its outsourced Transaction Monitoring System (TMS). The fine, which is the fourth highest penalty ever imposed by the Irish Financial Conduct Authority, highlights the importance of effective anti-money laundering (AML) compliance in the cryptocurrency industry.
Breakdown in AML Compliance Systems
The enforcement action centered on a breakdown in Coinbase Europe’s AML compliance systems, which resulted in around 30 million transactions going unmonitored between 2021 and 2022. The unmonitored transactions accounted for 31% of the company’s business volume during the affected period. According to the settlement document, Coinbase Europe had outsourced transaction monitoring to its U.S. parent company Coinbase Inc., which operated a TMS designed to detect suspicious activity. However, due to data configuration issues, five of 21 high-risk monitoring scenarios did not work as intended, resulting in the significant lapse in monitoring.
Ineffective Oversight and Disclosure
The settlement states that Coinbase Europe’s senior managers were not informed about the TMS issues until May 2023, and the company did not disclose the issues during its 2022 VASP filing. The Central Bank of Ireland found that Coinbase Europe’s systems and controls were “ineffective in monitoring the work of Coinbase Inc.” during the relevant period. The regulator also noted that the company’s oversight of Coinbase Inc. was “ineffective,” prompting the significant fine. The VASP registration will expire at the end of 2025, and Coinbase Europe will cease its operations in Ireland, relocating to Luxembourg.
Call for Regulatory Guidance
Interestingly, the enforcement action came during the same period that Coinbase submitted comments to the U.S. Treasury Department on cryptocurrency regulation. In these comments, the company called on the Treasury Department to issue regulatory guidance that explicitly recognizes Know Your Transaction (KYT) screening and blockchain analysis as effective means of improving compliance with AML and anti-terror financing regulations. Coinbase described its use of application programming interfaces (APIs) for “real-time transaction monitoring, dynamic risk assessment, secure data exchange, and integration with advanced analytics solutions,” and explained that these tools ensure the company “remains at the forefront of compliance innovation.”
Conclusion
The fine imposed on Coinbase Europe serves as a reminder of the importance of effective AML compliance in the cryptocurrency industry. The case highlights the need for robust systems and controls to monitor transactions and detect suspicious activity. As the cryptocurrency industry continues to evolve, it is essential for companies to prioritize compliance and work with regulators to develop effective AML frameworks. For more information on this story, visit https://crypto.news/coinbase-faces-e21-5m-aml-fine-as-irish-watchdog-flags-ineffective-tms/
