Main Points
- New York’s financial regulator penalized Paxos with a $26.5 million fine for compliance failures associated with its past engagement with Binance.
- Paxos has pledged to invest an additional $22 million to enhance its compliance mechanisms to align with NYDFS standards.
- The regulatory shortcomings included insufficient oversight for illicit activities and an ineffective KYC procedure.
New York’s leading financial authority has imposed a fine of $26.5 million on Paxos, the stablecoin issuer based in New York City, due to “systemic failures” in its compliance and anti-money laundering programs, especially relating to its previous partnership with Binance, a major global cryptocurrency exchange, as revealed in an announcement made this Thursday.
In addition to the fine, Paxos has committed to invest $22 million more to improve its compliance programs, ensuring they meet standards set by the NYDFS.
“The Department of Financial Services has led the nation in regulating the virtual currency industry, protecting consumers and markets through examinations, supervision, and where necessary, enforcement,” stated Adrienne Harris, Superintendent of the NYDFS.
The compliance failures highlighted were primarily linked to Paxos’ former collaboration with Binance, where the two entities joined forces in 2019 to launch Binance’s dollar-pegged stablecoin, BUSD. This partnership eventually resulted in Paxos being investigated by the NYDFS, leading to actions by the U.S. Securities and Exchange Commission as well.
Paxos mentioned that the compliance issues brought to light were “historical” and had been addressed over two and a half years ago, clarifying that they did not affect customer accounts or cause consumer harm.
