Paxos was fined $26.5 million by the New York Department of Financial Services and required to invest an additional $22 million to remedy the compliance system due to shortcomings in partner vetting with Binance and anti-money laundering.
The investigation showed that Paxos did not effectively monitor suspicious transactions related to Binance, leading to approximately $1.6 billion showing signs of illegality being transferred in the period of 2017-2022. The customer surveillance and transaction monitoring processes of Paxos were assessed to be lacking rigor, failing to timely detect and handle high-risk accounts and activities.
MAIN CONTENT
Paxos was fined and required to invest to improve its compliance system.
Paxos' monitoring process for transactions and customers was assessed as weak.
Approximately $1.6 billion of suspicious money laundering related to Binance in 2017-2022.
Why was Paxos fined?
Paxos was fined $26.5 million by the New York Department of Financial Services (DFS) due to serious errors in the examination and monitoring of its partner Binance as well as a weak anti-money laundering system.
DFS pointed out that Paxos did not implement sufficient due diligence measures regarding Binance, while the transaction monitoring system had many shortcomings and was not strict enough to detect suspicious transactions.
This affects the reliability and effectiveness of Paxos' risk control in financial operations, especially in the context of increasingly stringent cryptocurrency regulations.
What issues arose in the transaction monitoring process?
DFS's investigation found that Paxos' transaction monitoring system did not closely control suspicious transactions related to Binance.
Approximately $1.6 billion of suspicious funds from illegal activities were transferred out to Binance during the period of 2017-2022, which Paxos failed to detect in a timely manner.
Furthermore, Paxos' risk monitoring and customer identification procedures are weak, failing to ensure early warnings and handling high-risk accounts, leading to an increased risk of money laundering and fraud.
Paxos did not fully implement partner vetting measures and had serious shortcomings in its transaction monitoring system, leading to violations of important anti-money laundering regulations.
New York Department of Financial Services (DFS), August 2023
What is the impact of these shortcomings on Paxos and the cryptocurrency market?
The lack of rigor in Paxos' risk management diminishes the organization's credibility and compliance capabilities in the field of digital asset management.
Allowing large amounts of suspicious illegal money to go undetected negatively affects the trust of investors and financial partners, leading to stricter legal and regulatory risks.
This also highlights the need to enhance monitoring standards and compliance systems in the cryptocurrency industry to protect financial safety and market transparency.
Frequently Asked Questions
How much was Paxos fined and why?
Paxos was fined $26.5 million for not adequately monitoring transactions related to Binance and having a weak anti-money laundering system.
What is the amount of suspicious money laundering related to Binance?
Approximately $1.6 billion was found to show signs of illegality through transactions in the period of 2017-2022.
What does DFS require Paxos to do for remediation?
Paxos is required to invest an additional $22 million to overhaul its compliance and transaction monitoring system.
How does the incident impact the cryptocurrency market?
Is Paxos at risk of losing its operating license?
There is no information about Paxos having its license revoked, only fines and requests for system improvements.
Source: https://tintucbitcoin.com/paxos-bi-phat-va-phai-dau-tu/
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