Many countries are currently deliberating on how to regulate and manage cryptocurrency exchanges and cryptocurrency activities in general. The largest cryptocurrency exchange (by trading volume), Binance, is facing a rising number of trading restrictions and pressure from various governments to conform to their respective policies and practices.
UK and the Financial Conduct Authority ("FCA") response
At present, all cryptocurrency exchange platforms and companies must register with the FCA before they can offer crypto-related services in the UK. Certain offerings by a cryptocurrency exchange are viewed as "carrying on a regulated activity" by the FCA, due to the offering of derivatives and therefore requires regulation.
Binance has failed to register with the FCA. As a result of which, the FCA ruled that Binance Markets Limited, or any other entity in the Binance Group, cannot conduct any "regulated activity" within the UK and must seek permission before doing so. Furthermore, Binance is unable to conduct any marketing activities within the UK to promote the company.
Whilst Binance maintain that this ruling will have no direct impact upon their services, it has been forced to place a notice on its website stating they are not permitted to operate in the UK. As a result of the ruling, British banks such as HSBC have also stopped all payments to Binance. Barclays, Santander and Natwest have also taken steps to prevent payments to Binance and associated entities, therefore reducing Binance's ability to operate within the UK.
However, the UK is not the only country to have taken steps to prevent Binance from operating within their territories. The number of countries commencing or exploring the option of enforcement action against Binance and other cryptocurrency exchanges is ever-growing.
Notably in Europe, the Italian National Commission for Companies and the Stock Exchange recently released a statement warning the "Binance Group" are not authorised to provide investment services and activities in Italy. Similarly, in Lithuania, the central bank stated that Binance is providing "unlicensed investment services". Further warnings have been issued by Germany due to concerns of consumer protection and possible investigations into their issuance of tokenized stock. The Malta Financial Services Authority has also recently issued a second warning about Binance confirming again that Binance is not licensed nor authorised by it to conduct any virtual financial asset-related activities in or from Malta.
In response, Binance has ceased the operations of "Binance Jersey" and recently announced on Twitter that they "plan to wind down our derivatives product offerings across the European region, commencing with the Netherlands, Germany, and Italy," with the possibility of other countries to be included at a later date. Existing users will have 90 days to close their open derivative positions. The move will prevent the purchases of any new derivatives by consumers in these countries with immediate effect.
In North America, Binance has notably faced action by the USA, Canada and Cayman Islands.
Bloomberg has reported, the US Securities and Exchange Commission is also investigating Binance due to potential links with money laundering and tax offences. Binance released a statement stating they "take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion." They go on to confirm they "have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity."
Binance has also been warned by the Cayman Islands and Canada regulators that it is operating without jurisdiction with the Cayman Islands Monetary Authority issuing a statement confirming "Binance, the Binance Group and Binance Holdings Ltd. are not registered, licensed, regulated or otherwise authorised by the authority to operate a cryptocurrency exchange from or within the Cayman Islands."
Binance announced it will withdraw from offering services in Ontario after the Ontario Securities Commission accused Binance of failing to comply with regulations. Binance has asked users in this region to close their active positions.
Binance has notably been warned by Japan (for the third time) and Thailand that it is operating without jurisdiction in their countries. Similar warnings have been issued by Hong Kong and Singapore who have express concerns over Binance's practices. As a result of such warnings and Binance's failure to comply, Thailand's Securities and Exchange Commission has filed a criminal complaint against Binance.
Malaysia's securities watchdog has confirmed it is launching an "enforcement action" against Binance. Binance has also been ordered to disable access to Binance.com, its main exchange and all mobile applications within 14 business days from 26 July 2021.
In a recent statement by its CEO, Binance states that it welcomes more regulation of the cryptocurrency sphere as it shows the industry is maturing and will enable people to feel safe trading in cryptocurrency. The CEO continues to say that Binance has a commitment to partner with regulators and is looking to increase staff numbers in both their compliance team and advisory board to enable it to do so.
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