Binance, the world’s biggest cryptocurrency exchange, has been banned by the UK’s financial regulator. The Financial Conduct Authority (FCA) has ruled that the firm cannot conduct any “regulated activity” in the UK. It also issued a consumer warning about Binance.com, advising people to be wary of adverts promising high returns on crypto-asset investments. This comes amid pushback from regulators around the world against cryptocurrency platforms.
Binance.com is an online centralized exchange that offers users a range of financial products and services, including purchasing and trading a wide range of digital currencies, as well as digital wallets, futures, securities, savings accounts, and even lending. Binance Group is currently based in the Cayman Islands, while Binance Markets Limited is an affiliate firm based in London. The firm has multiple entities dotted around the world and Binance Group was previously based in Malta. The FCA said that Binance Markets Limited (BML), which is owned by Binance Group, is not currently permitted to undertake any regulated activities without the prior written consent of the FCA. It has until Wednesday to comply with the ruling.
The regulator also stressed that no entity in the Binance Group holds any form of authorization, registration, or license to conduct a regulated activity in the UK. While the FCA does not regulate cryptocurrencies, it does regulate crypto-assets. Firms must be authorized by the regulator in order to advertise or sell such products in the UK. This means that people in the UK are not allowed to use Binance’s services to speculate or bet, on whether the price of a cryptocurrency like Bitcoin goes up or down.
However, they are still allowed to use the website to purchase and sell cryptocurrencies, which is not regulated, cryptocurrency analyst Colin Stone told the World Business Report program on BBC World Service. But Binance told the BBC that the FCA notice has no “direct impact” on the services it provides from its website Binance.com. “BML is a separate legal entity and does not offer any products or services via the Binance.com website,” said a Binance spokesman. “The Binance Group acquired BML May 2020 and has not yet launched its UK business or used its FCA regulatory permissions.”
He added that the firm’s relationship with its users had not changed, stressing: “We take a collaborative approach in working with regulators and we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules and laws in this new space.”
Controversies over Binance’s activities
This is not the first time that Binance has come under scrutiny by regulators over its global operations. In the US, one of the firm’s entities – Binance Holdings – has been the subject of a probe by the US Securities and Exchange Commission (SEC), specifically by its officials dealing with money laundering and tax offenses, according to Bloomberg. The SEC issued a similar warning to US consumers in April about the platform. On Saturday, Binance announced it was pulling out of Ontario, Canada, after the Ontario Securities Commission (OSC) accused it and several other crypto trading platforms of failing to comply with province regulations.
And on Friday, Japan’s Financial Services Agency (FSA) warned Binance for the second time in three years that it is operating in the country without permission. One service Binance offers is the ability to use local currency to purchase digital currencies – known as fiat on-ramp in the industry. In mid-June, Binance’s US partner Silvergate Bank decided to stop processing US dollar deposits and withdrawals for the firm, according to CoinDesk.
While the cryptocurrency exchange says its entities are not all connected to it, Nick Saponaro, a long-time cryptocurrency investor and entrepreneur tells the BBC this is a handy tactic for avoiding regulatory problems. “Binance has over the course of their operations, moved several times to new jurisdictions,” he said. “That’s not uncommon for these fledgling crypto businesses…if the regulations don’t suit their needs, they just move their operations.”
Another of the firm’s entities – Binance.US – is currently one of the biggest digital currency exchanges in the US, and Binance is one of the biggest firms in the global fintech industry, he says. “I do believe they are trying to comply with regulations, but often with these businesses it’s an ‘ask for forgiveness’ model, [where] they hope they can make enough money so if they do incur a fine, it’s negligible compared to what they’ve earned.”
Mr. Saponaro, who co-founded the crypto-currency Divi and the blockchain payments ecosystem Divi Project, says the real problem with cryptocurrency exchanges is that they are still centralized, in that there is still a central authority that takes custody of the users’ money, almost like a bank. This is counter to what the crypto-currency and blockchain technologies were designed to do, and he feels that all exchanges should be totally decentralized, enabling users to have complete control over their digital coins. But he stresses that digital currencies are not a scam and eventually the fintech industry will get there.
“We’re 12 years into the crypto adoption cycle, these things just take time – the exact same things were said about the internet initially,” he said. “Governments of each jurisdiction, especially the G7, need to with full transparency and confidence give us the full regulations about what we can and cannot do, and it needs to fit what the technology actually does.”