© The roadAn investigation by the New York State Department of Financial Services found that Coinbase's actions left it vulnerable to criminal activity.
A disastrous year for cryptocurrencies ended with the infamous crash of FTX exchange, which went bankrupt in November 2022.
The rapid fall of FTX had a devastating effect on the entire cryptocurrency industry and led to a number of other bankruptcies.
On Jan. 3, former FTX CEO Sam Bankman-Freed pleaded not guilty to fraud and other charges following a series of revelations and lawsuits.
Three federal agencies—the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency—even issued a joint official statement on Jan. 3 warning banks about the risks associated with cryptocurrencies.
Cryptocurrencies in general are already tainted with speculation that they are being used by criminals for illegal purposes such as money laundering, fraud, human and drug trafficking.
In November, the European Central Bank released a blog post claiming that Bitcoin ( ~BTCUSD ) was the currency for rogue activity.
“Bitcoin's conceptual design and technological flaws make it a dubious means of payment. real bitcoin transactions are complex, slow and expensive. Bitcoin has never been used to any significant extent for legitimate real-world transactions,” the blog post reads.
Coinbase complies with New York regulators
US exchange Coinbase Global ( COIN ) is under investigation by the New York State Department of Financial Services over allegations of corrupt use of cryptocurrencies .
Half of this amount is a fine, and the remaining $50 million will be used by Coinbase to improve compliance practices.
Adrienne A. Harris, Chief Financial Services Officer, announced the settlement in a press release stating that the outages in Coinbase's compliance program violated New York City laws and regulations.
The agency said the outages have left the Coinbase platform vulnerable to serious criminal activity. This includes fraud, money laundering, suspected child sexual abuse and possible drug trafficking.
"It is imperative that all financial institutions protect their systems from intruders, and the department's expectations for consumer protection, cybersecurity, and anti-money laundering programs are just as stringent for crypto firms as they are for traditional financial institutions." Harris said:
“Coinbase has failed to build and maintain a functional compliance program that could keep pace with its growth,” he said. “This outage exposed the Coinbase platform to potential criminal activity and required the Department to take immediate action, including installing an independent monitor.”
Risks Federal agencies See for banks
On Jan. 3, the Fed, FDIC, and OCC released a statement warning of the risks of the cryptocurrency industry. The statement mentions a number of key risks associated with crypto assets.
Note that these threats have manifested as instability and weakness in 2022. Below is a list of the risks mentioned in the statement.
- Fraud and risk of fraud among crypto-asset operators.
- Legal uncertainty in matters of custody, rehabilitation and patrimonial practices, some of which are currently the subject of litigation and litigation.
- Inaccurate or false statements and disclosures by crypto firms, including false information about federal deposit insurance and other actions that could be unfair, misleading or offensive, causing significant harm to retail and institutional investors, customers and partners.
- Significant volatility in the cryptocurrency markets, the implications of which include the potential impact on deposit flows associated with cryptocurrency companies.
- The vulnerability of stablecoins to risk creates a potential flood of deposits for banking institutions that hold reserves of stablecoins.
- The risk of contamination of the cryptocurrency sector due to the interaction between some participants in crypto-assets, including non-transparent mechanisms for lending, investing, financing, maintenance and transactions. These interactions can also present a concentration risk for banking institutions associated with the cryptocurrency industry.
- Risk management and governance practices in the cryptocurrency industry show a lack of maturity and soundness.
- Increased risks associated with open, public and/or decentralized networks or similar systems, including, but not limited to, lack of governance mechanisms that provide control over the system; lack of contracts or standards to clearly define roles, duties and responsibilities; and vulnerabilities related to cyber attacks, disruptions, loss or confiscation of illicit assets and loans.