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Coinbase Reaches $100MM Settlement With New York Regulators


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What happened

Coinbase, the largest U.S.-based crypto exchange, has agreed to pay a $50 million fine for allowing customers to open accounts with insufficient background checks. In addition, it will invest $50 million to improve its compliance program.

Coinbase and the New York State Department of Financial Services announced the settlement on Wednesday. Regulators began investigating Coinbase in 2020 after a routine examination found compliance issues. Although the exchange hired an independent consultant, that didn’t fix the problems, so regulators began a formal investigation in 2021.

They found that Coinbase only performed rudimentary identity verification during its “know your customer” (KYC) process. It also had a backlog of over 100,000 alerts for potentially suspicious transactions by late 2021. Regulators ordered Coinbase to hire an outside monitor during the investigation, with the reason being that “We found failures that really warranted putting in place an independent monitor rather than wait for a settlement,” according to Adrienne A. Harris, New York State’s superintendent of financial services, as reported by the New York Times.

So what

Many investors flocked to cryptocurrency in 2020 and 2021. As money flooded into the sector, prices of everything from major cryptocurrencies to smaller tokens increased rapidly. Investors typically buy through crypto apps and exchanges, and in the United States, Coinbase is the most popular option.

Because of how rapidly cryptocurrency has grown, authorities have had to catch up and ensure that exchanges are complying with financial regulations. However, many crypto exchanges have skirted the rules. Some exchanges, with FTX being a notable example, have collapsed completely. Coinbase’s situation isn’t that bad, but compliance issues like these are still a major concern for investors.

One of the most important parts of choosing a crypto platform is security. Everyone wants to feel confident that their money and cryptocurrency is safe. Exchanges that don’t comply with regulations have been banned from many countries, and some have gone bankrupt. In those situations, you could be locked out of withdrawing money from your account.

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Now what

Crypto exchanges will likely put a renewed emphasis on complying with financial regulations in 2023. Last year was full of high-profile issues, which caused both crypto prices and investor confidence to plummet.

For crypto investors, this could mean going through a stricter KYC process, especially when opening a new account. There may also be lower thresholds for fraud alerts on transactions. These can be somewhat inconvenient, but they’re an important part of ensuring that cryptocurrency isn’t being used for criminal activity.

Although Coinbase clearly has had compliance issues, this doesn’t mean it’s a bad place to buy and sell cryptocurrency. It’s still a U.S.-licensed exchange that has committed to working with regulators. Many exchanges set up shop in countries with more relaxed regulations, which is much riskier for investors. While it’s hard to feel 100% confident in most crypto platforms right now, U.S.-licensed exchanges are a safer place to invest your money.



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