Paxos Pleases NYDFS with $48.5M Settlement Over Binance Compliance Lapses

Paxos, a New York-based stablecoin issuer, has settled a $48.5 million fine with the New York Department of Financial Services (NYDFS) following an investigation into compliance failures tied to its former partnership with cryptocurrency exchange Binance [1]. The settlement, announced on August 7, 2025, includes a $26.5 million fine to the state and a $22 million investment by Paxos to strengthen its compliance infrastructure [1].

The regulatory action centers on Paxos’ collaboration with Binance, which began in 2019 to issue Binance’s dollar-pegged stablecoin, BUSD [1]. NYDFS found that Paxos had failed to implement adequate controls to monitor illicit activity during this partnership. The regulator identified “deficient” transaction monitoring systems and an “unsophisticated” Know Your Customer (KYC) program, which allowed suspicious actors to evade detection [1]. Approximately $1.6 billion in illicit flows were detected between Binance and Paxos through the BUSD stablecoin during the partnership [1].

NYDFS highlighted that Paxos did not properly escalate red flags to senior leadership when suspicious activity was identified [1]. The regulator emphasized that regulated entities must maintain robust risk management frameworks, particularly when engaging in partnerships with third parties [1]. NYDFS Superintendent Adrienne Harris underscored this point in a public statement, noting the importance of aligning risk management strategies with business operations and external relationships [1].

The investigation into Paxos began over two years ago, with NYDFS ordering the company to cease issuing BUSD in February 2023 [1]. At the same time, the U.S. Securities and Exchange Commission (SEC) issued a Wells notice to Paxos, signaling potential legal action over alleged violations of securities laws [1]. The SEC ultimately dropped its enforcement case in 2024 [1].

A Paxos representative described the compliance issues as “historical” and confirmed they had been “fully remediated” more than two and a half years ago [1]. The spokesperson added that no customer accounts were affected and that there was no consumer harm [1]. “This marks the resolution of this matter,” the representative stated, emphasizing that Paxos has not faced similar issues with its other stablecoin initiatives [1].

The NYDFS action reflects the broader regulatory scrutiny facing the cryptocurrency industry, with anti-money laundering (AML) and KYC compliance emerging as central concerns for regulators [1]. As compliance programs evolve, firms like Paxos are being held to increasingly rigorous standards to ensure they prevent financial crime and protect the integrity of digital asset ecosystems [1].

Source:

[1] Paxos Fined $48.5M by NYDFS for Compliance Failures in Binance Partnership (https://blockonomi.com/paxos-fined-48-5m-by-nydfs-for-compliance-failures-in-binance-partnership/)