Is the FCA right about Binance?
A few straws in the wind since my last update. Senator Warren and 100 legislators in the US are gunning for crypto in respect of its alleged links with funding terrorism. This is a wonderful gift to the anti-crypto brigade, who acted astonished when the Israelis asked for various Hamas-linked accounts to be blocked.
The Bank of International Settlement (BIS) in Basel is looking for proper macro information on crypto transactions; for example, details on where exchanges are domiciled. This in itself is surprising when you think about it – major money-related businesses don’t have to register what the French refer to as a ‘siège social’ – literally ‘social seat’.
And what does this have to do with Binance? The Financial Conduct Authority (FCA) has made it very clear that the way it operates in the UK is no longer acceptable and, indeed, Binance withdrew its FCA application before it was thrown out.
Warnings that Binance is not regulated by the FCA appear in many places, not least on the FCA’s own site – which states: ‘Binance is not authorised to carry out any regulated activities in the UK’. In addition, Mastercard has stopped its collaboration with Binance in Latin America and Bahrain, and Binance will shut down its European Visa card in December, among a host of other recent developments.
Euphemistically, these moves are touted as being due to “regulatory uncertainty”, but, in reality, the new Markets in Crypto-Assets (MiCA) regulations take a very dim view of unregulated entities handling people’s money. Paysafe, a payments processor, had already dropped handling Binance Euro transactions, which resulted in a month-long shutdown of these services.
Across the pond, US dollar withdrawals from Binance have been suspended since June. Although, the exchange says customers can change their tokens into USDT and then move the stablecoins elsewhere.
So, Binance is under pressure from all sides. And why not? Why should a multi-billion-dollar company have no specific place to serve notices? It definitely ought to.
Almost inevitably, there is a connection to FTX and Sam Bankman-Fried – otherwise known as SBF – which may very well lead to Binance being in serious trouble. SBF decided to buy back the percentage of FTX held by Binance and paid some $2 billion for it.
The only problem is that at least $1.2 billion was neither FTX nor Alameda funds, it was their customers’ deposits. As such, they can be clawed back by the liquidators of FTX which would likely cause quite some problems for Binance, as, apart from anything else, some of those funds were FTT tokens (FTXs own coin) which is now effectively worthless.
It has been said before but the comparison with Coinbase is striking. On the one hand is Binance, fighting a rearguard action against regulations all over the world and no registered office. On the other is Coinbase, a properly constituted, regulated, and governed entity in lots of places.
To the best of my knowledge, Coinbase has complied with any and all regulations it has been faced with. You can serve a notice on the company at its registered office, where you can also serve papers in respect of company officers.
Changpeng Zhao – or CZ, Binance’s CEO – doesn’t even have a place where such papers could be served to him, and he quite literally disappeared recently when the US Department of Justice wanted to get in touch.
My personal belief is this cannot continue for much longer, and I am particularly interested that the BIS is starting to pay close attention. If nothing else, it shows the fiat world is beginning to take notice, and it follows on from my view that a world entity akin to the BIS would be required for crypto.
But, of course, why reinvent the wheel when you already have the infrastructure and an institution that has the require gravitas and authority ready-made? Whether the BIS will take up that mantle remains to be seen, but it instinctively feels like a natural fit.
Finally, here’s what exchanges now have to display on their UK websites. I love the text for its clarity and precision: “Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.”
Those who fear the ‘ruinous’ impact of regulation, rules, and disclaimers should take a look at the impact this has had on the crypto market. Since my last article, Bitcoin is up nearly +20%.
Temple Melville is CEO of The Scotcoin Project Community Interest Company (CIC)