Coinbase gets fined in The Netherlands
Oops Coinbase did it again
At the start of November 2020, Coinbase, the world’s largest crypto exchange, was preparing to enter the Netherlands with its services, having already secured its license from the Dutch Central Bank (DNB). Unfortunately, Coinbase stumbled out of the gate due to a bureaucratic snag, operating unregistered in the Netherlands for a full seven months.
For this mistake, the DNB recently levied a €3.3 million ($3.6 million) fine against Coinbase, a penalty which the DNB was quick to point out was enhanced due to the gravity of the situation, the size of the exchange, and the number of customers it serves in the Netherlands.
It’s worth noting that Binance, another major crypto exchange, was fined an identical sum by the DNB last summer for operating without a license in the Netherlands. Binance, who had also applied for a license, was caught up in the same bureaucratic red tape as Coinbase, and similarly served customers before it had obtained its license.
The DNB explained the fine by saying Coinbase had a competitive advantage in not paying supervisory fees whilst unregistered, and to make matters worse, it took the exchange until September 22, 2022 to correctly register.
Coinbase attempted to defend itself against the charge, with a spokesperson stating: “We disagree with the fine, which is based on the time it took for Coinbase to obtain our registration in the Netherlands. Coinbase should not be penalized for playing by the rules and engaging in this process.”
Despite the argument, the DNB has given Coinbase until March 2 to either object to the fine or appeal the decision. Coinbase has said that it is “carefully considering” the objections and appeals process.
In the meantime, it’s clear that mistakes can come with a high price tag, and that the regulators in the Netherlands aren’t afraid to issue huge fines to businesses who fail to abide by the rules. This makes it essential for any crypto exchanges looking to expand into the Netherlands to make sure they have their paperwork in order and their licenses in place before they begin providing services.
Not the first time
Coinbase has come under fire multiple times in the past for violating regulations. The U.S. Commodity Futures Trading Commission (CFTC) and the U.S. Securities and Exchange Commission (SEC) are two of the regulatory bodies that have fined Coinbase for its mishandling of customer funds.
In 2018, Coinbase was fined $6.5 million by the CFTC for failing to properly register as a Futures Commission Merchant (FCM). It was also fined $13 million by the SEC for negligence in its handling of customer funds. Coinbase was accused of failing to maintain an adequate system of internal accounting controls to protect customer funds and was also accused of misusing customer funds for its own benefit.
In 2020, Coinbase was fined $35 million by the New York State Department of Financial Services (DFS) for allegedly engaging in “false and deceptive” activities, including failing to properly register with the DFS as a virtual currency service provider, and for failing to maintain adequate capital and cybersecurity protections.
Never a good time
Fines levied against companies like Coinbase can have a profoundly negative effect on the customers of the company. First, such fines can lead to an increased cost of doing business, as the company is forced to pay the fine and work to comply with any new regulations. This can result in higher fees for customers as the company attempts to recoup their losses. Second, customers can be affected by a loss of trust from the fine, as their confidence in the company may be shaken by the news of the fine.
This can lead to a decrease in customers, as those who are wary of the company may choose not to use the services provided by Coinbase. Finally, fines can cause a disruption to the services offered by Coinbase, as the company may be required to make changes to comply with new regulations. This can lead to an interruption of service that can be inconvenient or even detrimental to customers.
These multiple fines demonstrate that Coinbase has failed to abide by regulatory compliance and has put customers at risk of financial loss. Coinbase has taken steps to address these regulatory issues and spend more resources on compliance, but it remains to be seen if these efforts will be successful.