TLDR

New York regulator fined Paxos $26.5 million for compliance failures related to its Binance partnership
Paxos agreed to invest an additional $22 million to improve its compliance program
Issues included inadequate monitoring for illicit activity and deficient KYC procedures
NYDFS found approximately $1.6 billion in illicit flows between Binance and Paxos via BUSD
Paxos states these were “historical issues” that have been “fully remediated”

Paxos, a New York-based stablecoin issuer, has reached a $48.5 million settlement with the New York Department of Financial Services (NYDFS) over compliance failures related to its past partnership with cryptocurrency exchange Binance.

The settlement, announced on August 7, 2025, requires Paxos to pay a $26.5 million fine to New York state. The company has also committed to investing an additional $22 million to overhaul its compliance program.

The regulatory action stems from Paxos’ partnership with Binance, which began in 2019 when the two companies collaborated to issue Binance’s dollar-pegged stablecoin, BUSD. According to the NYDFS investigation, Paxos failed to implement proper controls to monitor illicit activity occurring through Binance.

NYDFS Superintendent Adrienne Harris emphasized the importance of risk management in a press statement.

“Regulated entities must maintain appropriate risk management frameworks that correspond to their business risks, which includes relationships with business partners and third-party vendors,” Harris said.

The regulator identified several specific compliance failures in its investigation. When illicit activity was detected, Paxos reportedly “failed to escalate red flags” to higher-level executives and board members within the company.

Compliance Shortcomings

Beyond the Binance-related issues, NYDFS discovered other deficiencies in Paxos’ compliance infrastructure. The company’s Know Your Customer (KYC) program was described as “unsophisticated,” allowing bad actors to open multiple accounts without detection.

NYDFS also criticized Paxos’ transaction monitoring system as “deficient,” stating it prevented the company from “detecting obvious patterns of money laundering.” The regulator found approximately $1.6 billion in illicit flows between Binance and Paxos through the BUSD stablecoin.

This settlement resolves an investigation that began over two years ago. In February 2023, NYDFS ordered Paxos to stop issuing BUSD altogether. Around the same time, the U.S. Securities and Exchange Commission (SEC) sent Paxos a Wells notice indicating its intention to sue the company.

The SEC later dropped its enforcement action against Paxos in 2024. The regulator had initially accused Paxos of distributing “unregistered securities” and violating consumer protection laws through its Binance partnership.

Regulatory Timeline

The regulatory scrutiny of Paxos intensified in early 2023 when both the SEC and NYDFS took action against the company within days of each other. NYDFS stated that while it had authorized Paxos to issue BUSD on the Ethereum blockchain, it had not authorized “Binance-Peg BUSD” to be issued on any blockchain.

A representative for Paxos described the compliance failures identified by NYDFS as “historical issues that were identified over two and a half years ago and have since been fully remediated.” The spokesperson added that these issues “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,” the Paxos representative stated. “There are no new claims regarding Paxos’ relationship with Binance or the issuance of BUSD, and Paxos’ other white-labeled stablecoins operate on similar models with different partners and have not faced any regulatory issues.”

The NYDFS action against Paxos comes amid increasing regulatory oversight of the cryptocurrency industry, with anti-money laundering regulations and KYC requirements becoming major focus areas for government agencies.

The post Paxos Fined $48.5M by NYDFS for Compliance Failures in Binance Partnership appeared first on Blockonomi.

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Filed under: Bitcoin - @ August 8, 2025 11:30 am