Home Business New York Fines Cryptocurrency Trading Platform $30 Million in First-Ever DFS Crypto Settlement

New York Fines Cryptocurrency Trading Platform $30 Million in First-Ever DFS Crypto Settlement

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New York Fines Cryptocurrency Trading Platform $30 Million in First-Ever DFS Crypto Settlement

On August 2, 2022, the New York State Department of Financial Services (“DFS”) announced that Robinhood Crypto, LLC (“RHC”), a trading platform that allows clients to transact crypto -mints, had agreed to pay a $30 million fine to resolve allegations of “significant” breaches in its compliance with New York State anti-money laundering and cybersecurity regulations. In addition to the fine, the settlement will also require RHC to hire an independent consultant to assess the company’s remediation efforts and compliance with DFS regulations. RHC did not acknowledge the allegations contained in the consent order.

As described in the DFS Consent Order, New York State law requires financial institutions to maintain an effective Anti-Money Laundering (“AML”) program and to design and implement implement reasonably designed systems to identify and report suspicious activity and block illegal transactions, and this applies to entities trading in cryptocurrency. 23 NYCRR § 200.15(b), (d). Under 3 NYCRR § 417.2, “Approved Money Transmitters” are required to establish, implement, and maintain effective AML programs that include, among other things: policies, procedures, and internal controls reasonably designed to guard against money laundering; and accurate, complete, and timely reporting of suspicious activity. 3 NYCRR § 417.2. Finally, according to DFS, the Transaction Monitoring Regulation requires certain DFS-regulated entities to maintain transaction monitoring and sanction screening programs that are reasonably designed, based on the entity’s risk assessment, to monitor the entity’s transactions for possible BSA/AML violations and suspicious activity reports and to interdict transactions that are prohibited by the Office of Financial Asset Control of the US Treasury Department. 23 NYCRR § 504.3(a), (b).

DFS’s allegations against RHC stem from a 2020 supervisory review and subsequent investigation that allegedly led DFS to find “significant deficiencies” in the trading platform’s Crypto AML program, such as a staff inadequate, insufficient resources and a manual transaction monitoring system ill-suited for the rapid growth of the trading platform’s crypto business. Specifically, DFS alleged that RHC’s crypto business “does not have enough BSA/AML personnel” with appropriate skill levels to support the company’s AML program, as evidenced by its so-called ” significant backlog in . . . assessing potentially suspicious transactions DFS also found that the trading platform used a manual transaction monitoring system that was allegedly not sophisticated enough to support the high volume of transactions trading platform, with the company averaging “106,000 trades per day” as of September 30, 2019. DFS said similar shortcomings exist with the trading platform’s cybersecurity program, such as a lack of internal staff dedicated and an inability to adequately cover the company’s various operations, etc. The DFS, however, noted in its consent order that RHC had already taken some corrective actions since the conclusion of its investigation in 2020.

This is DFS’s first settlement with an entity operating in the cryptocurrency market and it suggests, seen along with other recent resolutions, that regulators are keen on taking “first ever” enforcement actions. in this space. As the regulatory landscape around cryptocurrency continues to materialize and refine, businesses that deal with cryptocurrency should carefully monitor regulations like these and assess their own compliance programs accordingly.

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