Germany’s financial watchdog has censured crypto exchange Coinbase following an annual audit that raised questions over its set-up in Europe’s biggest economy.
BaFin ordered Coinbase to ensure it had in place a “proper” business structure after an audit by Deloitte found “organisational deficiencies” in how the group’s German unit was organised, the regulator said on Tuesday.
Deloitte in May gave Coinbase’s financials an unqualified audit opinion, meaning they were presented accurately and fairly, but the accountancy firm flagged up organisation flaws with the regulator.
BaFin’s reprimand marks the latest blow for US-listed Coinbase, which is among the biggest players in the digital asset industry. The company revealed last week that it swung to a $545mn loss in the third quarter as a sharp downturn in crypto prices this year knocked its trading volumes.
Coinbase, which has seen its shares tumble almost 80 per cent since its direct listing in April 2021, also unveiled plans this summer to shed almost a fifth of its workforce, amounting to more than 1,000 people.
BaFin’s censure comes after Coinbase in June 2021 became the first group to secure permission from the German financial regulator to provide crypto custody and proprietary trading services.
Coinbase’s BaFin permission was part of the broader industry’s pivot to Europe ahead of anticipated EU-wide regulations that are set to co-ordinate the bloc’s approach to crypto. In recent months, Coinbase and Crypto.com secured registration in Italy, while competitor Binance snapped up registrations in France, Italy and Spain.
Regulators have been sharpening their scrutiny of crypto exchanges to increase consumer protections and ensure the venues are taking sufficient action to prevent money laundering, sanctions violations and other criminal activity on their platforms.
One issue often flagged up by regulators is how crypto exchanges, which process more than $1tn a month in trades collectively, often have complex and opaque corporate structures. Binance, the biggest crypto exchange, for example says it has no formal headquarters. BaFin last year warned investors that Binance probably violated securities rules over its launch of trading in stock tokens.
In response, Coinbase said it was proud to be the first crypto company to receive BaFin regulatory approval, and remains committed to meeting legal requirements under the German regime. “To date, we have made substantial progress on this plan,” it added.
The exchange added it had developed plans to address each of BaFin’s concerns. BaFin declined to provide further details.
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