Central Bank imposes €3.25m fine on Coinbase’s Irish arm over safeguarding breaches

The Irish arm of cryptocurrency platform Coinbase Group in 2023 directed customers to deposit funds into alternative bank accounts held by Coinbase to protect them from potential losses arising from bank failure during a US banking crisis

The Central Bank also found that Coinbase Ireland failed to adequately safeguard customers’ funds because of system design and “insufficient control testing” which resulted in its designated safeguarding account to be underfunded for lengthy periods of time. File photo

The Central Bank of Ireland fined cryptocurrency platform Coinbase Group’s Irish arm €3.25m over claims it has weaknesses in its internal processes, which the bank said resulted in breaches to safeguarding obligations.

“Coinbase Ireland failed to have in place an adequate outsourcing governance framework,” the central bank said in a statement on Thursday. “They placed excessive reliance on the US-based Coinbase Group as an outsourced service provider to implement safeguarding processes.” 

Coinbase Ireland in 2023 directed customers to deposit funds into alternative bank accounts held by Coinbase to protect them from potential losses arising from bank failure during a US banking crisis, a company spokesperson said in a statement on Thursday. 

This helped to protect customers, the spokesperson said, but it involved customers’ funds “being mixed with funds held for other Coinbase entities, which was not in line with regulatory safeguarding requirements.” 

Central Bank director of enforcement, Karen O'Leary said: “Firms in Ireland must have the appropriate culture and expertise to comply with the rules, respond to risks and to protect customer interests. While outsourcing presents many benefits to industry, when not effectively managed, it can threaten the operational resilience of firms."

The Central Bank also found that Coinbase Ireland failed to adequately safeguard customers’ funds because of system design and “insufficient control testing” which resulted in its designated safeguarding account to be underfunded for lengthy periods of time, the statement added.

“These issues largely arose in the context of Coinbase taking steps to protect customers during periods of significant disruption,” the Coinbase spokesperson added. “No customers suffered financial loss or were unable to access their funds as a result of these issues.” 

The fine comes a year after the Central Bank also fined Coinbase Europe €21.5m, following a 30% settlement discount, for breaching its anti-money-laundering and counter terrorist financing transaction monitoring obligations.

Bloomberg