NYDFS Fines Paxos $26.5M Over Binance BUSD Compliance Failures

New York’s Department of Financial Services (NYDFS) has imposed a $26.5 million penalty on Paxos, a stablecoin issuer based in New York City, for compliance failures associated with its former partnership with Binance. The fine, announced in a press statement, is the result of a two-and-a-half-year investigation by the regulator into Paxos’ operations tied to the issuance of Binance’s BUSD stablecoin. Alongside the penalty, Paxos has committed to an additional $22 million investment aimed at strengthening its compliance infrastructure to meet NYDFS requirements [1].

The regulatory action centers on what NYDFS described as “systemic failures” in Paxos’ compliance and anti-money laundering (AML) programs. Specifically, the regulator identified inadequacies in monitoring for illicit activity related to Binance, as well as failure to escalate red flags to senior management and the board. These issues were compounded by a weak Know Your Customer (KYC) program and an ineffective transaction monitoring system, which left Paxos vulnerable to money laundering risks [1].

The relationship between Paxos and Binance, which began in 2019, led to the co-issuance of BUSD, a dollar-pegged stablecoin. However, the partnership drew scrutiny from multiple regulators. In 2023, NYDFS launched an investigation into the BUSD program, while the U.S. Securities and Exchange Commission (SEC) issued a Wells notice to Paxos. Although the SEC later chose not to pursue enforcement, NYDFS continued its examination, eventually ordering Paxos to cease issuing BUSD. The Thursday-announced fine is directly tied to this original investigation [1].

Paxos acknowledged the compliance issues as “historical” and stated that they had been fully addressed and resolved over two years ago. A company representative emphasized that there was “no impact on customer accounts and no consumer harm.” The representative also noted that Paxos’ other white-labeled stablecoins, issued with different partners, have not encountered regulatory challenges [1].

NYDFS Superintendent Adrienne Harris underscored the importance of the enforcement action in a press statement, emphasizing the regulator’s leadership in virtual currency oversight. “Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks,” Harris said. The fine and additional investment by Paxos are seen as key steps in upholding consumer protection and financial system integrity [1].

The case highlights the growing regulatory focus on stablecoin operations and the partnerships that support them. While Paxos has moved to separate itself from Binance and discontinue the BUSD program, the regulatory scrutiny it has faced underscores the heightened expectations for compliance and risk management in the crypto industry.

Source: [1] NYDFS Fines Stablecoin Issuer Paxos $26.5M for Compliance Failures Tied to Binance’s BUSD

(https://www.coindesk.com/policy/2025/08/07/nydfs-fines-stablecoin-issuer-paxos-usd26-5m-for-compliance-failures-tied-to-binance-s-busd)