New York’s top financial regulator has fined Paxos, a New York City-based StableCoin issuer, $ 26.5 million for “systemic failures” in its compliance and anti-laundering money laundering, including a former partnership with Global Crypto Exchange, according to a Thursday message.
In addition to the fine, Paxos agreed to spend an additional $ 22 million to improve his compliance program to bring it up to Snuff with the New York Department of Financial Services’ (Nydfs) Standards.
“The Department of Financial Services has led the nation to regulate the virtual exchange rate industry, protect consumers and markets through studies, surveillance and, if necessary, enforcement,” Nydf’s superintendent Adrienne Harris said in a press release. “Regulated units must maintain appropriate risk management frameworks that correspond to their business risks, which include relationships with business partners and third -party providers. The department continues to take significant steps to secure accountability and again protect consumers and protect the integrity of the economic system.”
The compliance errors identified by Nydfs were largely tied to Paxos’ disposable partnership with Binance, the world’s largest crypto exchange. The two companies collaborated in 2019 to issue Binance’s Dollar-Pegged Stablecoin, BUSD. Relationship with Binance eventually landed Paxos in Hot Water: In 2023, Nydfs launched a study of Paxos’s issue of Busd, US Securities and Exchange Commission (SEK) Sent Paxos a Wells message informing the company of its intention to sue (a year later, SEC decided to drop his enforcement action), and Paxos eventually decided to stop issuing Busd completely in the order of Nydfs.
The fine announced on Thursday is tied to Nydfs’ original study. According to Nydfs’ press release, the study revealed that Paxos did not have appropriate controls in place to effectively monitor for illegal activity that occurred through Binance. And when illegal activity was identified, the regulator said, the company “did not escalate red flags” to Paxos’ higher-ups and board members.
In addition to the Binance-related observational problems, Nydfs said its study of Paxos showed other deficiencies in his observing program, including an “unsophisticated” know your customer (Kyc) Program that enabled illegal actors to open multiple accounts and remain undetected, and a “deficient” transaction monitoring system that prevented Paxos from “detecting obvious patterns of money laundering.”
A representative of Paxos described compliance errors identified by Nydfs as “historical problems identified over two and a half years ago and have since been fully remedied.” The problems, the representative added, “had no influence on customer accounts and there was no consumer injury.”
“This marks the solution of this case and we are happy to put it behind us,” the representative said. “There are no new allegations of Paxos ‘relationship with Binance or Issuing Busd, and Paxos’ other white brand stablecoins operate on similar models with different partners and have not been subjected to any legislative problems.”
