BaFin Urges Coinbase to Mitigate its Organization Deficiencies

Owing to certain violations committed by Coinbase’s local arm in Germany, the Federal Financial Supervisory Authority of Germany, also known as BaFin has asked that the exchange makes changes to some of its ‘organization deficiencies.’

This order was rolled out to Coinbase more than six weeks ago when these shortcomings were revealed in its audited financial statement.

Based on the published BaFin statement, Coinbase Germany GmbH was ordered to “ensure proper business organization in accordance with Section 25a Paragraph 2 Sentence 2 of the German Banking Act ( KWG ).” Some sub-sections of the German Banking Act were precisely violated like adequate risk management, staffing, and IT systems.

BaFin claimed that Coinbase Germany’s arm did not have effective risk management to suffice when services or transactions meant to be offered by the company are outsourced to a third party. Therefore, it is expected that the exchange opens and maintains an outsourcing register as part of a risk management strategy.

Additionally, Coinbase Germany GmbH is expected to have “suitable arrangements for managing, monitoring and controlling risks and appropriate arrangements by means of which the institution’s financial situation can be gauged with sufficient accuracy at all times”, according to a regulatory framework outlined by the United States Commodity Futures Trading Commission (CFTC).

Coinbase Receives Germany Licence and Others

Certifications of audits for reports related to the firm’s annual accounts are also expected from Coinbase. Even with the regal stature of Coinbase, it seems like the German regulator perceives potential threats from the present organizational standard of the exchange. Markedly, BaFin issued an operational license for crypto custody services to Coinbase last year. 

As a way of announcing the licensing in 2021, a blog post by the American publicly traded company stated;

“Coinbase is committed to providing customers in Germany and around the world with the most trusted and easy-to-use crypto services. Becoming licensed in Germany marks an important milestone as we strive to enable economic freedom around the world.”

Apart from Germany, Coinbase is also licensed to provide its services and products in Italy after it met the set of criteria outlined by the Italian regulator, the Organismo Agenti e Mediatori (OAM). Also, the exchange has an operational license from the Dutch Central Bank (De Nederlandsche Bank – DNB).