New York’s top financial regulator has imposed a $26.5 million “system failure” fine for New York City-based Stablecoin issuer Paxos, whose compliance and anti-money laundering programs, including past collaborations with Global Crypto Exchange Binance.
In addition to the fine, Paxos agreed to spend another $22 million to improve its compliance program to bring it to the NYFSA snuff’ (NYDFS) standard.
“The Department of Financial Services has led the country to regulate the virtual currency industry, passing examinations, oversight and, if necessary, protect consumers and markets,” Adrienne Harris, director of NYDFS, said in a press statement. “Regulated entities must maintain an appropriate risk management framework corresponding to their business risks, including relationships with business partners and third-party suppliers. The department continues to take significant steps to ensure accountability, which in turn protects consumers and maintains the integrity of the financial system.”
The compliance failure identified by NYDF is closely related to Paxos’s one-time partnership with Binance, the world’s largest crypto exchange. The two companies collaborated to issue Binance’s Dollar-Peggggggging Stablecoin Busd in 2019. Relationship with Binance finally lands Paxos in hot water: 2023, NYDFS A survey was conducted Enter Paxos Issuance BUSD, SEC (SEC) Sent a wells notification Notify the company of the intention to sue (a year later, the SEC decides Give up law enforcement actions), Paxos finally decided Stop issuing BUSD In the order of NYDFS.
The fine announced Thursday was related to the original investigation by NYDFS. According to a NYDFS press release, the investigation shows that Paxos does not have proper controls to effectively monitor illegal activities occurring through second-hand bodies. The regulator said the company “failed to escalate red flags” when illegal activity was discovered, to Paxos’ superiors and board members.
NYDFS says its investigation into Paxos has caused other flaws in its compliance program, including a “uneducated” knowing your clients (KYC) Allowing illegal participants to open multiple accounts and maintain undiscovered plans, as well as a “under” transaction monitoring system, prevents Paxos from “detecting obvious money laundering patterns.”
A representative of Paxos described the compliance failure determined by NYDF as “a historical issue discovered two and a half years ago that has since been fully fixed.” The representative added that the issues “have no impact on customer accounts and no harm to consumers.”
“This marks a solution to this problem and we’re happy to leave it behind us,” the delegate said. “There is no new claim on Paxos’ relationship with Binance or Busd releases, other white-marked Stablecoins of Paxos operate on similar models with different partners and are not facing any regulatory issues.”
