Coinbase reprimanded by German regulator BaFin over business structure

Germany’s financial regulator has censored crypto exchange Coinbase after an annual audit that raised questions about its establishment in Europe’s largest economy.

BaFin has ordered Coinbase to ensure it has a “proper” business structure after an audit by Deloitte found “organizational deficiencies” in the organization of the group’s German entity, the regulator said on Tuesday.

Deloitte issued an unqualified audit opinion on Coinbase’s financials in May, meaning they were presented accurately and fairly, but the accounting firm flagged organizational flaws with the regulator.

The BaFin censure marks the latest blow for US-listed Coinbase, which is one of the biggest players in the digital asset industry. The company announced last week that it posted a loss of $545 million in the third quarter as a sharp decline in crypto prices this year weighed on its trading volume.

Coinbase, whose shares have fallen nearly 80 percent since going public in April 2021, also announced plans this summer to lay off nearly a fifth of its workforce, equivalent to more than 1,000 employees.

BaFin’s reprimand comes after Coinbase became the first group to receive permission from Germany’s financial regulator to offer crypto custody and proprietary trading services in June 2021.

Coinbase’s BaFin approval was part of the entire industry’s pivot to Europe ahead of expected EU-wide regulations designed to coordinate the bloc’s approach to crypto. In recent months, Coinbase and Crypto.com secured registration in Italy, while competitor Binance snagged registrations in France, Italy and Spain.

Regulators have tightened their scrutiny of crypto exchanges to improve consumer protections and ensure venues are taking adequate steps to prevent money laundering, sanctions breaches and other criminal activity on their platforms.

One issue often raised by regulators is that crypto exchanges, which collectively process more than $1 trillion in trades per month, often have complex and opaque corporate structures. For example, Binance, the largest crypto exchange, says it has no formal headquarters. BaFin warned investors last year that Binance likely breached securities rules when it launched stock token trading.

Coinbase did not immediately respond to a request for comment on the notice, and BaFin declined to provide further details.

https://www.ft.com/content/13868a52-3df1-46b6-ab78-7c111402b935 Coinbase reprimanded by German regulator BaFin over business structure

Adam Bradshaw

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