Paxos agreed to pay the regulator a fine of $26.5 million and additionally allocate $22 million for a review of its compliance program.
NYDFS stated that Paxos had not conducted the required due diligence on the largest cryptocurrency exchange, Binance. The regulator claims that illegal money transfers totaling $1.6 billion were made through the exchange using the Binance USD (BUSD) stablecoin issued by Paxos Trust. In 2023, NYDFS required Paxos to cease issuing new $BUSD .
The financial regulator explained: the lack of a Know Your Customer (KYC) procedure was another reason to pay attention to Paxos's activities. Under NYDFS requirements, the company is required to conduct due diligence on each new customer.
"Regulated organizations must effectively manage risks, which also includes relationships with business partners and third-party vendors," said department head Adrienne Harris.
In February 2023, the U.S. Securities and Exchange Commission (SEC) warned Paxos of possible legal action. The regulator suspected the company of distributing unregistered securities and violating consumer protection laws, which, according to the regulator, involved collaborating with Binance for the listing of the stablecoin. However, in 2024, the SEC closed its investigation into Paxos and the stablecoin $BUSD #busd #cryptouniverseofficial #BinanceSquareTalks #stablecoin .
