The main financial regulator of New York has fined Paxos, a Stablcoin issuer based in New York City, $ 26.5 million for “systemic failures” in its compliance and anti-launching programs, including an earlier association with Global Crypto Exchange Binance, according to a Thursday announcement.
In addition to the fine, Paxos agreed (NYDFS) standards
“The Department of Financial Services has addressed the Nation to regulate the virtual currency industry, protecting consumers and markets through exams, supervision and, when necessary, the application,” said Nydfs Superintendent Adrienne Harris in a press release. “Regulated entities must maintain appropriate risk management frameworks that correspond to their commercial risks, which includes relations with commercial partners and external suppliers. The department continues to take significant measures to guarantee responsibility, in turn protect consumers and protect the integrity of the financial system.”
The compliance failures identified by NYDFS were largely linked to the Single Paxos Association with Binance, the largest cryptographic exchange in the world. The two companies joined in 2019 to broadcast the Binance Stablecoin, Busd. The relationship with Binance finally achieved paxos in hot water: in 2023, NYDFS launched an investigation into the broadcast of Paxos Bus, the United States Stock Exchange and Securities Commission (SECOND) He sent to Paxos a Wells notice informing the company about its intention to sue (a year later, the SEC decided to abandon its compliance action) and Paxos finally decided to stop issuing Busd completely in the Nydfs order.
The fine announced on Thursday is linked to the original Nydfs research. According to the Nydfs press release, the investigation revealed that Paxos had no appropriate controls to effectively monitor the illegal activity that occurs through Binance. And when the illegal activity was identified, said the regulator, the company “could not increase the red flags” to the superiors and members of the Board of Paxos.
In addition to the compliance problems related to Binance, NYDFS said that his research on Paxos presented other deficiencies in his compliance program, including a “little sophisticated” knows his client (KYC) Program that allowed illegal actors to open multiple accounts and remain without being detected, and a “poor” transaction monitoring system that prevented paxos “from detecting obvious money laundering patterns.”
A Paxos representative described the compliance failures identified by the NYDF as “historical issues that were identified more than two and a half years ago and since then they have been completely remedied.” The problems, the representative added, “had no impact on customer accounts and there was no damage to the consumer.”
“This marks the resolution of this matter and we are pleased to leave it behind,” said the representative. “There are no new statements regarding the relationship of Paxos with Binance or the BUSD broadcast, and the other stablcoins marked of Paxos operate in similar models with different partners and have not faced any regulatory problem.”
