Paxos Trust Company will pay $26.5 million to the NYDFS. This payment settles allegations over its former compliance with Binance. In its cease and desist order, the New York financial services regulator claimed that Paxos Trust also failed to exercise sufficient due diligence over Binance. This penalty addresses violations resulting from Paxos’s activities in producing the Binance USD (BUSD) stablecoin.
Paxos Trust, a New York-based fintech firm, is one of the leading firms globally in minting digital tokens commonly referred to as stablecoins. According to the NYDFS, Paxos Trust’s lack of oversight over its relationship with Binance resulted in violations of compliance obligations. These failures made it easier for U.S. customers to access Binance illegally.
Compliance Failures and Remediation
The NYDFS investigation found systemic failures in Paxos Trust’s anti-money laundering program. The dollar peg failure The SEC’s regulator perspective Token issuer Paxos Trust didn’t sufficiently oversee its partnership with Binance, the SEC found. This failure nearly cost the New York-based start-up their company.
Paxos Trust has committed $22 million in the settlement to improve its compliance program. This investment is intended to increase its capacity to more effectively root out and prevent the spread of illicit financial activities. According to a Paxos spokesperson, the line of business has taken corrective action.
"For the avoidance of doubt, the compliance issues discussed are historical issues that were identified over two and half years ago and have since been fully remediated." - Paxos spokesperson
End of Binance Partnership
Paxos Trust terminated its relationship with Binance in February 2023. Impact on financial stability This decision followed intense regulatory scrutiny and concern about the BUSD stablecoin’s compliance with Bank Secrecy Act and anti-money laundering regulations. In turn, the BUSD stablecoin is no longer minting new coins.
It further noted that the NYDFS expects stablecoin issuers to have strong compliance programs. These consumer protective programs are critical to ensuring stablecoins aren’t misused for bad actors. Paxos’s settlement is a strong signal of how seriously regulators are taking compliance in the digital asset space.
"These matters had no impact on customer accounts and there was no consumer harm. This marks the resolution of this matter and we are pleased to put it behind us." - Paxos spokesperson
Paxos's Commitment to Compliance
Although these penalties and the history of compliance are in the past, Paxos continues to assert its commitment to regulatory compliance and oversight. The company has taken enormous steps to improve its compliance program and is working hard to ensure it stands at the very top of its peer group.
Paxos hopes to prevent any further damage to its reputation with customers and other stakeholders moving forward by demonstrating a commitment to regulatory obligations. The company is clearly committed to building a secure and compliant platform as the foundation of its digital asset services.
"No other blockchain and tokenization platform has shown more dedication to seeking oversight and complying with global institutional standards as Paxos has done for over a decade—and we are committed to maintaining that moving forward." - Paxos spokesperson
