Coinbase Hit With $4.5 Million Penalty By UK FCA: Here’s Why

The FCA imposed the fine after finding that Coinbase U.K. breached a voluntary agreement by engaging with 13,416 high-risk clients.

Approximately 31% of these clients deposited around $25 million, which was then used for transactions totaling roughly $226 million across various Coinbase Group entities.

Coinbase Subsidiary Played Key Role in UK Crypto Market

While not directly handling crypto transactions, CB Payments Limited (CBPL) serves as a gateway for clients seeking to trade through other entities within the Coinbase Group. The Financial Conduct Authority (FCA) implemented an agreement with CBPL in October 2020, citing concerns over its financial oversight mechanisms. 

Although Coinbase does not publicly disclose its exact customer numbers in the U.K., the country is its second-largest market after the United States. Coinbase holds an e-money license and is registered with the FCA’s anti-money laundering registry for crypto businesses.

Therese Chambers, the joint executive director of enforcement and market oversight at the FCA, stated , 

“The money laundering risks associated with crypto are obvious, and firms must take them seriously.”

FCA’s Financial Promotions Rules Spark Confusion and Trading Challenges

In Jan. 2024, Coinbase users in the U.K. faced a new challenge due to the latest Financial Conduct Authority (FCA) Financial Promotions rules. The new rules required users to complete two new tasks, including providing additional information to continue trading on Coinbase.

This regulatory update stems from the FCA’s final policy and handbook rules set out in Aug. 2022 aimed at consumers and firms involved with high-risk investments, including digital assets. The new regulations also introduced complexities such as a 24-hour cooling-off period, client appropriateness testing, and client categorization, all of which were to be fully implemented by Jan. 8, 2024

The changes initially confused users, as seen in discussions on social platforms like Reddit. Many users could not trade after failing the new appropriateness tests, which included a trading questionnaire. These tests, designed to assess users’ suitability for engaging in high-risk investments, proved challenging even for those familiar with digital assets. Despite attempts to contact Coinbase for solutions, users reported experiencing long wait times and receiving unhelpful responses.