The first half of the year has been a tale of two sides for the largest cryptocurrency exchange, Binance. After introducing smart contracts through Binance Smart Chain (BSC), the company emerged as a pioneer frontrunner in the DeFi revolution. Shortly after, Binance followed up by eating into the market share of another fast-growing sector of the industry when it launched its NFT marketplace in June. The euphoria of these landmark achievements has however been short-lived by a pot-pourri of regulatory sanctions.
Regulatory Headaches for Binance
The floodgates of a regulatory clampdown opened when the Japanese Financial Services Agency (FSA) issued a stern warning to Binance for operating in the country without permission. The watchdog further warned that Binance would face criminal charges if it continued to offer trading services to citizens and residents in Japan without obtaining the proper license. The FSA issued a similar warning to Binance in 2018. Binance downplayed the recent allegation in response, stating that it would “gradually implement transaction restrictions for customers residing in Japan”.
Barely two days later, the UK’s Financial Conduct Authority (FCA) barred Binance from serving customers in the country, stating that the exchange is not “permitted to undertake any regulated activities” in the UK. Following the report, many customers in the UK complained of not being able to withdraw or deposit pounds via Faster Payments (an innovative UK payments scheme), although it was not clear if it had anything to do with the ban.
Binance’s effort to expand its product offerings by introducing zero-commission tradable stock tokens starting with TESLA also hit a rock when the German regulator BaFin warned investors that Binance breached its securities law by launching stock tokens. The regulatory body explained that Binance risked being fined for offering traditional asset exposure to cryptocurrency traders without an investor prospectus.
How Has Binance Responded?
After increased scrutiny by Hong Kong authorities and Lithuania Central Bank, Binance finally bowed to regulatory pressure by halting the sale of stock tokens, TESLA and COIN. An announcement on its website stated that it will no longer support stock tokens in October and that traders had 90 days to close their positions.
Binance has however stepped up its drive to remain on the right side of the authorities despite the barrage of sanctions directed at it. The company responded to the UK FCA’s claims, saying that Binance Market Limited (BML) was a new acquisition and as a result, was an unregistered subsidiary of the wider Binance Group. Per the exchange’s tweet, operations in the country remained unaffected.
CEO Chanpeng Zhao had assured users of the exchange’s efforts to reach an agreement with the Japanese FSA after earlier foiled attempts led to the withdrawal of its staff from its Japan office.
Should Binance fail to obtain the necessary license in countries where it currently faces regulatory issues, it may look towards introducing a similar initiative to the one launched in the United States.
Binance in the US
The largest exchange by trading volume created a new exchange, Binance US in 2019 for customers in the US after regulatory bodies banned the parent company for failing to fulfill regulatory obligations. Binance US is registered with the United States Financial Crimes Enforcement Network and was created specifically to comply with all existing US regulations. Similarly, Binance will launch a UK trading platform, Binance UK, which the UK FCA will fully regulate.
The creation of new subsidiary companies appears to be a potent weapon against regulatory onslaughts for Binance. It may prove to be a means to finally bridge the gap between the exchange and regulators worldwide.