Binance Compliance Issues – The largest cryptocurrency exchange on the planet is facing the flak of regulators in several countries. The largest crypto exchange has been operating in these countries for a while but suddenly it is getting red flag form these countries one-by-one.
In this article we analyze the series of events, and how badly they can impact Binance and its users.
Germany warns Binance for launching security-tracking tokens
In April 2021, the Federal Financial Supervisory Authority, otherwise known as BaFin, warned Binance that the exchange could face heavy fines for launching security-tracking tokens without an accompanying investor prospectus.
The warning came soon after Binance launched fractionalized stock tokens for Apple, MicroStrategy and Microsoft, following tokens for Coinbase and Tesla. The exchange had employed German equity firm CM-Equity AG to hold its “depository portfolio of underlying securities,” which, Binance claims, provides full financial backing for the tokens.
The regulator said Binance’s failure to provide an investor prospectus for either of the stock tokens it launched was a violation of European Union securities law and could result in Binance facing a fine of 5 million euros ($6 million).
“BaFin has grounds to suspect that Binance Germany is selling shares in Germany in the form of ‘share tokens’ without offering the necessary prospectuses,” stated BaFin.
“Please bear in mind that securities investments should only ever be carried out on the basis of the necessary information,” the regulator added.
Japan Warns Binance For Operating Without Permission
The Financial Services Agency (FSA), Japan’s financial regulator, has warned that cryptocurrency exchange Binance is operating in the country without permission.
In fact, Binance was warned by the FSA in March 2018 for the same reason. CEO Changpeng “CZ” Zhao spoke out against at reports at the time that Binance was subject to criminal charges by the FSA, claiming that the exchange was in “constructive dialogues” with the regulator over the matter.
“Binance does not currently hold exchange operations in Japan, nor do we actively solicit Japanese users,” a Binance spokesperson told CoinDesk. “As you can understand, we do not comment, as a matter of policy, on specific matters related to any regulators.”
United Kingdom Financial Regulator Bans Binance
The Financial Conduct Authority (FCA) has banned cryptocurrency exchange Binance from operating in the UK.
What happened? The UK market regulator said that Binance Markets Limited, the U.K. division of Binance, “is not permitted to undertake any regulated activity in the U.K.”
From June 30, Binance must add a notice in a prominent place in its website and apps showing U.K. users the following text:
BINANCE MARKETS LIMITED IS NOT PERMITTED TO UNDERTAKE ANY REGULATED ACTIVITY IN THE U.K. Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. (No other entity in the Binance Group holds any form of U.K. authorisation, registration or license to conduct regulated activity in the U.K.).
The cryptocurrency exchange Binance took to twitter to clarify, it said: Binance Markets “does not offer any products or services via the Binance.com website,” the global crypto exchange said Sunday via Twitter. “The Binance Group acquired BML in May 2020 and has not yet launched its U.K. business or used its FCA regulatory permissions.“
The Cayman Islands’ financial regulator has joined a list of watchdogs globally that are scrutinizing Binance and its business dealings.
“Binance Group and Binance Holdings Limited are not registered, licensed, regulated or otherwise authorized by the Authority to operate a cryptocurrency exchange from or within the Cayman Islands,” the islands’ Monetary Authority said in a press release Friday.
Thailand Alleges Binance Operating Without License
The Thailand SEC also alleges that the crypto exchange is operating a digital-asset business in the country without a license.
Thailand’s Securities and Exchange Commission (SEC) has filed the complaint with the Economic Crime Suppression Division of the Royal Thai Police (ECD), saying Binance had failed to meet a deadline for responding to an earlier warning , according to an announcement on the SEC’s website.
Singapore Reviewing Binance Application Inspired By Global Treatment
The Monetary Authority of Singapore (MAS), the country’s financial regulator and central bank, is reviewing Binance’s application for a license to operate in the city-state.
The Monetary Authority of Singapore said it is closely watching the regulatory developments surrounding Binance Holdings Ltd., owner of the Binance crypto exchange.
The country’s financial watchdog is expected to “follow up” with the company’s local subsidiary Binance Asia Services Pte., Bloomberg reported. The subsidiary has a grace period while it awaits a review of its license application.
Poland Issues Consumer Warning
Poland’s finance watchdog has issued a consumer warning about the cryptocurrency exchange. On Wednesday, the Polish Financial Supervision Authority (PFSA) published a statement on Binance’s growing regulatory issues around the world, stressing that the company’s operations are unregulated in Central European countries.
The crypto market is “neither regulated nor subject to supervision” by the PFSA, the regulator noted, cautioning the public about the risks associated with trading on Binance, given the growing pushback to the exchange from global financial regulators, stating:
“In line with the protection of financial market participants and warnings of foreign supervisory authorities, the PFSA office recommends exercising special caution when using services of Binance group entities and trading cryptocurrencies, as it may involve a significant risk that may result in the loss of funds.”
What Binance Has To Say
On July 6, 2021, Binance CEO responded to the global regulatory pressure, calling compliance a ‘Journey’. CZ said the adoption and development of crypto contained many parallels to regulations around automobiles in that “laws and guidelines were developed along the way.”
“We are seeing wider adoption of cryptocurrencies globally and the need for clearer regulatory frameworks in different countries,” said CZ. “More regulations are, in fact, positive signs.”
CZ stated that Binance is gradually adapting to regulations all over the world. But he also recognizes that Binance “haven’t always got everything exactly right.” Zhao further stressed:
Compliance is a journey – especially in new sectors like crypto. The industry still has a lot of uncertainty. We also recognize that with the growth comes more complexity.
Binance is facing flak of local governments due to its failure in complying with local regulations. It is one of the most complex matters international companies face due to the costs associated with it. Zhao stated:
We are committed to being compliant with appropriate local rules wherever we operate. We have seen regulators take a more active interest in the industry as-a-whole as the industry goes main-stream.
At the same time, Zhao called for clearer regulations. In his view, more regulations are a positive development for the industry, but these need to be easier to follow. This makes more people confident in the industry and will more capital to the market.
Binance Ramping Up Compliance
CZ stated that Binance is taking tangible steps to ramp up compliance.
On June 30, 2021, Binance announced that it has deployed CipherTrace Traveler, the leading commercial solution created to enable compliance with global “travel rule” regulations. Traveler is designed to support Virtual Asset Service Providers (VASPs), including cryptocurrency exchanges, custody providers, OTC trading desks, banks and other financial institutions, to achieve compliance with the Financial Crimes Enforcement Network’s (FinCEN) and the Financial Action Task Force’s (FATF) travel rule regulations.
The letter also stated that Binance has outlined some tangible steps to ensure compliance at local level and to protect its users.
Binance Global Compliance team has grown 500% in just one year, achieving partnerships with institutions like United Nations Office on Drugs and Crime (UNODC) and Interpol.
- Growing International Compliance Team: Binance said that its international compliance team and advisory board has grown by 500% in just one year. Notable appointments include former FATF Executive Secretary Rick McDonell and former Head of the Canadian delegation to the FATF Josée Nadeau as compliance and regulatory advisors, as well as Max Baucus, the former US Senator for Montana and US Ambassador to China, to provide high-level guidance. The crypto exchange has planned to double its compliance team by the end of the year, with qualified and experienced advisors to support.
- Expanding Compliance Partnerships: Binance mentioned that it has cleared multiple external anti-money laundering (AML) audits. Also it is collaborating on working groups and seminars with notable anti-crime organizations such as the United Nations Office on Drugs and Crime (UNODC) and Interpol.
Localizing operations and business to comply with local regulations: Binance said that it is working to localize its operations. For example, Binance.com is not available to US users, while there is a brand partnership with Binance.US, which is a fully independent entity that is a compliant and regulated exchange in the US, to provide US users with a safe, secure, and compliant trading platform.
Binance said that regulators have started taking a more active interest in the crypto industry as-a-whole as the industry entering into mainstream. CZ considers it a positive development, however, there is still much to do to harmonize the treatment of cryptocurrency around the world.