Coinbase Fined $24.7M Due to Tech Errors, AML Failures

Coinbase Europe Limited, the European arm of the prominent U.S.-based crypto exchange Coinbase, has recently been subjected to a substantial fine of €21.5 million (approximately $24.7 million) by the Central Bank of Ireland (CBI). This penalty comes after the identification of significant technical errors within Coinbase’s transaction monitoring systems, which led to a failure in screening a substantial number of customer transactions for suspicious activity between 2021 and 2022. The regulatory body highlighted these lapses as a “critical compliance lapse,” emphasizing the importance of robust anti-money laundering (AML) protocols in the cryptocurrency sector. This incident underscores the increasing scrutiny faced by crypto platforms from financial regulators globally.

The Extent of the Compliance Failure

The Central Bank of Ireland’s investigation revealed that Coinbase Europe’s transaction monitoring system suffered from a series of coding failures, which resulted in thousands of customer transactions going unscreened for potential illicit activities. These errors impacted approximately 31% of all transactions processed by Coinbase Europe during the period from 2021 to 2022, totaling a value exceeding $202 billion. Such a widespread failure in monitoring raised serious concerns regarding the platform’s ability to detect and prevent money laundering or other financial crimes, which is a fundamental requirement for financial institutions operating under regulatory oversight.

The core of the problem stemmed from three specific coding errors that affected five out of 21 transaction monitoring scenarios, leading to only partial screening of certain transactions. This meant that critical flags designed to identify suspicious patterns were not fully operational, creating a vulnerability in Coinbase’s compliance framework.

Coinbase’s Remediation and Regulatory Engagement

In response to the Central Bank of Ireland’s findings, Coinbase disclosed the settlement and confirmed its full cooperation with the regulator. The company acknowledged the deficiencies and promptly took steps to rectify the issues. Within weeks of their discovery, Coinbase fixed the coding flaws and initiated a comprehensive review of the affected transactions.

As part of this remediation effort, Coinbase re-analyzed approximately 185,000 transactions out of a total of around 97 million processed during the period. This re-screening led to the filing of about 2,700 suspicious transaction reports (STRs) with the Irish authorities, covering a combined value of €13 million. While the settlement does not imply that any of these flagged transactions were confirmed to involve criminal activity, it highlights the potential risks that the unchecked transactions posed.

The crypto exchange has since strengthened its monitoring systems and compliance checks to prevent similar occurrences in the future. This includes expanding testing protocols, introducing additional layers of internal oversight, and implementing new monitoring scenarios designed to detect high-risk activity more effectively.

Broader Regulatory Landscape and Challenges for Coinbase in Europe

This fine from the Central Bank of Ireland adds to a growing list of regulatory challenges for Coinbase’s international entities. The incident comes at a time of heightened global scrutiny over cryptocurrency platforms, particularly concerning anti-money laundering (AML) and know-your-customer (KYC) compliance.

Previously, in July 2024, Coinbase’s UK-based subsidiary, CB Payments Limited, faced a £3.5 million ($4.5 million) fine from the Financial Conduct Authority (FCA). This penalty was imposed for breaching a voluntary restriction that prohibited the onboarding of high-risk customers. The FCA found that CB Payments had provided e-money services to over 13,000 such customers, who collectively transferred nearly $226 million through Coinbase-linked platforms despite the restriction. This marked the first enforcement action under the UK’s Electronic Money Regulations 2011, signaling a firm stance from British regulators.

Across Europe, authorities are actively tightening AML oversight of crypto platforms, particularly in anticipation of the full rollout of the Markets in Crypto-Assets (MiCA) regulation. For instance, French regulators have been conducting on-site AML inspections of numerous registered digital asset firms, including major players like Binance and Coinhouse, to assess their readiness for EU-wide licenses. Regulators in countries such as France, Austria, and Italy have even advocated for the EU’s top markets watchdog to directly supervise major crypto exchanges, citing concerns about inconsistent enforcement across member states.

Coinbase Europe, which established its Dublin office in 2018 and selected Ireland as its European hub in 2023, is strategically positioning itself to operate across all 27 EU member states once MiCA takes full effect. This makes robust compliance and a strong regulatory standing even more crucial for its long-term operational success in the region.

Conclusion

The €21.5 million fine imposed on Coinbase Europe by the Central Bank of Ireland serves as a stark reminder of the critical importance of effective transaction monitoring and robust compliance systems in the rapidly evolving cryptocurrency industry. While Coinbase has swiftly addressed the technical errors and reinforced its compliance framework, the incident highlights the ongoing challenges faced by crypto platforms in meeting stringent regulatory expectations. As global regulators continue to enhance oversight, particularly with the advent of regulations like MiCA, cryptocurrency exchanges must prioritize and invest in comprehensive AML procedures to build and maintain trust within the financial ecosystem and ensure a secure environment for their users.