Financial technology firm Block Inc., known for its widely used Cash App service, has agreed to a $40 million penalty levied by New York regulators due to significant gaps in its crypto compliance framework.
The New York Department of Financial Services (NYDFS) announced the settlement Thursday, concluding an investigation that uncovered critical weaknesses in how Cash App handled customer verification, risk assessment, and transaction surveillance, particularly concerning virtual currencies.
Regulators determined these deficiencies made the platform susceptible to illicit use, highlighting issues with largely untraceable Bitcoin (BTC) transactions escaping necessary oversight.
“Compliance functions must keep pace with company growth or expansion,” stated NYDFS Superintendent Adrienne A. Harris. She noted that Cash App’s rapid user expansion without equally robust compliance created vulnerabilities that breached New York’s financial regulations.
This enforcement action highlights the growing expectation for digital asset platforms to adhere strictly to anti-money laundering (AML) protocols, similar to traditional financial institutions.
Enhanced Oversight Mandated
Beyond the financial penalty, Block must now employ an independent consultant. This monitor will oversee the required enhancements to Cash App’s compliance systems, ensuring they meet the state’s rigorous regulatory benchmarks.
Block obtained its New York money transmission license in 2013 and secured its virtual currency BitLicense in 2018.
The NYDFS action follows closely on the heels of an $80 million settlement Block paid to 48 state regulators concerning separate AML compliance issues. The New York investigation specifically pointed to a significant backlog of unaddressed transaction alerts between 2019 and 2020, elevating the risk profile of the platform.
Block reportedly cooperated with the NYDFS probe and indicated it has already started investing in strengthening its compliance measures.
The settlement underscores the non-negotiable requirement for all financial entities, including those handling crypto assets, to maintain effective controls safeguarding the financial system’s integrity.