Thursday, July 18, 2024

'It's a Big Question': Is Binance Capable of Being Regulated? , cryptocurrency


In 2021, the Financial Conduct Authority was adamant: Binance is not able to be regulated in the UK.

Officials at the world’s largest cryptocurrency exchange are not taking no for an answer. This month, Binance vowed to do “everything” it could possibly do to change the city’s regulator’s mind against a backdrop of deepening skepticism about the digital asset.

Last year’s collapse of one of Binance’s biggest rivals, FTX, and subsequent criminal proceedings tarnished the sector. Those concerns were underscored this month by parliament’s cross-party Treasury Committee, which said UK officials should regulate cryptocurrency trading As a form of gambling – saying that digital assets like bitcoin have “no intrinsic value”. Global market watchdog, the International Organization of Securities Commissions (Iosco) this week called for a different approach, saying that cryptocurrencies should be regulated in the same way as traditional assets like stocks and bonds.

There is evidence elsewhere that tech firms in the UK face a fairer regulatory environment. Britain’s most valuable fintech firm Revolut could have its application for a banking license rejected by the Bank of England after the company’s auditor, BDO, raised concerns about the balance sheet, reports suggest.

Binance, which handles $65bn (£53bn) in daily trading and has no global headquarters, has been accepted by some oversight regimes but rejected by others. In the case of America, the business is firmly under the watch of the authorities.

On May 10, Patrick Hillman, the company’s chief strategy officer, expressed grief over the action in America He said they have made it “very difficult” to do business in a major market. Joining the company in 2021, Hillman is familiar with the regulatory environment in Europe. He was formerly a senior figure at the public relations firm Edelman where his expertise included crisis management, and before that he held a consultant role for the European Commission. He added that Binance was going to do everything to be regulated in the UK, and described the EU’s recently agreed crypto-asset regulation, MICA, as “a huge step forward”.

As part of any UK process, Binance will need to register with the FCA, which requires crypto-exchanges to prove they have systems in place to prevent money laundering and the financing of terrorism.

Football star Cristiano Ronaldo is among the famous names promoting Binance. Photograph: Quality Sport Images/Getty Images

The regulator said it does not comment on specific companies, but has not changed its official position on Binance since 2021, when it barred the business from regulated activity in the UK. At the time the FCA said the firm was “not able to carry out supervision effectively”. It appears that nothing has happened yet to change that view.

of regulator 2021 Supervisory Information Binance’s ownership structure has been referred to as “complex” and “wide geographic spread”, factors that appear to “obstruct the provision of adequate and reliable information to the FCA”.

According to the Commodity Futures Trading Commission, the US regulator, ambiguity is still an issue. Which oversees the market for derivatives (transactions that effectively bet on the price of a cryptocurrency instead of buying it outright). The CFTC sued Binance in March, calling it an “opaque web of corporate entities.” Citing an organizational chart featuring over 120 entities involved in jurisdictions around the world, the regulator alleged: “The reliance on a labyrinth of corporate entities to operate the Binance platform is deliberate; It is designed to obscure ownership, control and location.

Binance said at the time Complaint Was “unpredictable and disappointingBecause it had already invested an additional $80m to ensure compliance with regulators around the world.

TikTok megastar Khabi Lam is one of the big names promoting the Binance brand. Photo: Maria Laura Antonelli / shutterstock

Nigel Brahms, partner at UK law firm Collier Bristow, said Binance has the resources to deal with the FCA’s concerns. However, Binance would need to assemble a compliance team in the UK, he said.

Brahms added: “The FCA requires firms that it authorises, or even those that are only subject to its crypto registration regime, to have sufficient infrastructure on the ground in the UK. wants to operate their trading platform outside, they will need to hire locally based support functions, at the core of which will be anti-money laundering and compliance.

Carol Alexander, a professor of finance at the University of Sussex, said that regulating Binance would be a major challenge if the company sought authorization for its full range of activities. This was because the company was a “multifunction organisation”, offering a wide range of products from broking to high-frequency derivatives trading, he said.

“It is a huge demand for a country to regulate Binance,” Alexander said. “Even though Government plans to make UK a global crypto asset technology hubThe resources currently available are far less than what is needed.”

So far, the shutdown of FTX in November has not affected the price of the crypto. According to a rule of thumb in the investment world, the recent rise in interest rates may have made unconventional assets less attractive, but so far this year the value of bitcoin, the cornerstone crypto asset, is up 6o% to $26,440 as of Friday morning. It is well below its high of $69,000.

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Binance is licensed and registered by regulators in several jurisdictions including France, Italy, Spain, Australia, Abu Dhabi, Dubai and Japan. It also uses big names to push its brand, with its business partners including footballer Cristiano Ronaldo, Italy’s Lazio football team and TikTok megastar Khabi Lam.

The US commodities regulator’s case against Binance, which has not yet gone to court, alleges the company has taken a lax approach to internal controls. In one instance, Samuel Lim, former chief compliance officer of Binance, has been cited by the CFTC in 2020 for conversations about certain clients, including some from Russia. Lim said: “Like come on. They are here for the crime. Binance’s anti-money laundering reporting officer agreed, saying: “We see the bad, but we turn a blind eye.”

UAE ???????? deserves a lot of credit for being forward thinking on crypto. First dedicated crypto regulator in the world, published a clear rulebook (!), business friendly and strong customer protection. Really enjoying my journey so far.

– Brian Armstrong ????️ (@brian_armstrong) May 8, 2023

America in particular has become a regulatory skeptic. This month, another crypto exchange Coinbase praised the regulatory regime for digital assets in the UAE. The US financial watchdog, the Securities and Exchange Commission, warned Coinbase in March that it was considering legal action against the company over possible violations of securities laws.

Last month, SEC Chairman Gary Gensler defended the watchdog’s tough stance on crypto regulation in an appearance before Washington lawmakers. Crypto-trading platforms and exchanges must comply with the law, he said, “and until they do, we will continue to chase them as the police”. The SEC has announced over 30 cryptocurrency-related enforcement actions through 2022.

Binance handles $65bn in daily trading and has no global headquarters. Photograph: Omar Marques/SOPA Images/REX/Shutterstock

John Stark, a former SEC official and senior lecturer at Duke University’s School of Law, said the FTX collapse was motivated by concerns over consumer protection and the industry’s use of fanciful investor jargon when offering broking or exchange-like services. Was.

“Cryptocurrency is in the midst of a regulatory onslaught in the US. I have never seen an SEC enforcement program this intense before,” he said.

A Binance spokesperson said the company has been “outspoken” about the need for effective regulation of the industry: “We strongly believe that a stable regulatory environment can support innovation and is key to establishing trust in the industry and long-term growth.” is necessary for

“Binance has invested heavily in a robust compliance program that includes sophisticated anti-money laundering principles and tools used by traditional financial institutions to detect and trace suspicious activity.”

Further regulation is coming to the UK. In February, the Treasury published a consultation document on bringing crypto regulation in line with traditional assets such as stocks and bonds, and talked about balancing “the risks as well as the opportunities”. Any opportunity, if given, will come with better scrutiny.