Central Bank fines Irish-based unit of crypto giant Coinbase €3.3m

Central Bank fines Irish unit of Coinbase

The Central Bank of Ireland has fined a second Irish-regulated unit of Coinbase Global, one of the world’s largest crypto asset exchange operators.

The regulator has fined Coinbase Ireland, a licensed electronic money firm, €3.25 million for regulatory breaches as it was found to have had excessive reliance on its US parent for outsourced services, failed to adequately safeguard customers funds, and had governance shortcomings. The fine remains subject to High Court confirmation.

It followed a €21.5 million fine levelled by the bank against Coinbase Europe, a virtual asset service provider, for failing to properly monitor more than 30 million transactions for money laundering or terrorist financing over the course of a year.

Coinbase Europe’s Irish Vasp registration lapsed at the end of last year as the group moved its activities to Luxembourg as the EU moved from national Vasp registration regimes to a harmonised authorisation under markets in cryptoassets regulation, known as Mica.

Safeguarding and governance failures

The Central Bank found that for a period of four years Coinbase Ireland allowed its users’ funds to be mixed with funds held elsewhere – despite the Irish entity’s explicit promise at the time of authorisation in 2019 that it would have robust and automated safeguards. The failure increased the risk of loss of these funds, the regulator said.

It added that the outsourcing of the safeguarding function and overreliance on the US parent “materially impaired” the quality of the Irish unit’s internal safeguarding controls.

“While outsourcing presents many benefits to industry, when not effectively managed, it can threaten the operational resilience of firms,” said Karen O’Leary, the Central Bank’s director of enforcement.

“Payment and e-money firms have a fundamental obligation to fully safeguard customers’ funds. The Central Bank has made its supervisory expectations in this regard clear: we have no tolerance for weaknesses in safeguarding arrangements.”

Regulatory focus on compliance assurances

O’Leary said that details and commitments given by firms during the authorisation process are critical to the Central Bank’s assessment of whether or not to authorise a firm.

“Failing to adhere to the assurances made during the authorisation process or to inform us of material changes as happened in this case is completely unacceptable,” she said.

“This action against Coinbase Ireland underlines the Central Bank’s focus on ensuring that customers are at all times protected and that the integrity of the financial system is maintained.”

Coinbase Global is the largest cryptocurrency exchange in the US and the world’s biggest custodian of Bitcoin. The parent group is led by chief executive and co-founder Brian Armstrong, one of the most influential people in the fast-growing cryptocurrency industry.