What’s going on at Binance?
On June 16th, the largest crypto exchange in terms of daily trading volume announced that it would halt all its activities in the Netherlands immediately. They explained that they had no choice but to close since they had been unable to obtain the necessary registration from the authorized regulatory authorities. This followed a €3.3 million fine imposed by DNB in July 2022 for operating without clearance. Binance announced that they will leave the market due to their application to register under the Dutch crypto authorization regime being rejected.
Binance had long been aiming to secure a Virtual Asset service provider (VASP), which is required to operate within the country. Due to the confidentiality requirements of DNB, it cannot share any details on the shortcomings of Binance’s registration failings, and as such, we cannot make any assumptions as to what exactly caused the request for adequate requirements to be rejected. Binance has stated that it is stepping up efforts to ensure that it is fully in compliance with the new EU Mica regulation.
The implementation of the European Union’s recently published Markets in Crypto-Assets Regulation (MiCA) could provide Binance with an alternative avenue to operate in the Netherlands come 2024. DNB spokesperson, Tobias Oudejans clarified that the crypto exchange could gain access to the Dutch market if it meets the necessary requirements in other EU member states. As such, the future of Binance within the Netherlands does not look as hopeless as one would presume. Shortly after the announcement that it would be exiting the Dutch markets, Binance explained that it planned to leave Cyprus in order to focus on being compliant with the aforementioned regulation.
The MiCA regulation, which aims to take effect in 2024, aims to harmonize crypto regulation across the European Union and prevent bad actors within the cryptocurrency sphere from harming consumers. Binance is already compliant in multiple European countries, such as France, Italy, Spain, Portugal, Sweden, and Lithuania. As such, one can presume that Binance will make numerous attempts to become MiCA compliant. This incident in the Netherlands isn’t an isolated incident for Binance. This follows a pattern of tumultuous months for both Binance and the broader cryptocurrency industry.
Binance is also under investigation in France because of its AML procedures and the fact that it advertised its services before they were registered with the financial market regulators. Binance is accused of illegally operating as a digital service provider prior to receiving regulatory clearance in May 2022, as well as of aggravated money laundering, concealment, and conversion, the latter carried out by perpetrators of offenses that earned profits. Since 2019, crypto exchanges in France are required to obtain the approval of the Financial Markets Authority (AMF) to operate, Binance later received approval in May 2022. The investigation was opened by the specialized interregional jurisdiction of Paris (JIRS), after the case was referred to them by the Service d’Enquete Judiciaires des Finances, a governmental body with oversight of financial crime. Additionally, in December, a legal complaint against Binance on behalf of more than a dozen plaintiffs was filed, alleging misleading commercial practices, illegal canvassing,and fraud.
Binance has also had legal issues in Belgium. On the 23rd of June, Belgium’s Financial Services and Markets Authority said that Binance is providing trading and wallet custody services in Belgium from countries that are not members of the European Economic Area, which is prohibited. This resulted in the market regulators issuing a Cease and Desist on offering or providing any and all services in the Belgian market. As we can see by now, Binance has a habit of circumventing key regulations and not taking them seriously.
June 2021 presented another legal problem for Binance when the UK’s Financial Conduct Authority declared that Binance would no longer be able to process withdrawals and deposits for its clients in the United Kingdom after its banking partner at the time terminated its operating agreement. This resulted in the FCA banning the trading platform from operating in the UK due to the concerns that it had concerning the lack of cooperation with regulators.
Binance faces similar allegations in the United States of America. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) investigated claims of trading in crypto assets and derivatives without regulatory licence. Furthermore, they are accused of engaging in the unlicensed offer and sale of securities, commingling investor funds with their own funds, and mixing billions of dollars of client cash with a separate trading firm held by Binance’s founder. Binance’s assets in the United States are at jeopardy of being frozen.
This increased scrutiny can be attributed to increased monitoring of the crypto world as a result of the MiCA regulation, which will soon become part of European law. Binance moving out of numerous countries across multiple continents signifies a shift in attitudes towards the previously lax regulations for cryptocurrencies. In the past year, cryptocurrencies have become increasingly unstable and unreliable, which is the exact opposite of what they promised at their inception. Since its inception, some of cryptocurrencies strongest critics have referred to it as the ‘new wild west‘. In the absence of any adequate controls, crypto-assets are driving speculation by promising fast and high returns and exploiting regulatory loopholes that leave investors without any form of protection. The MiCA regulation will ensure that investors receive adequate protection in the cryptosphere and make it a safer environment for everyday people. The first batch of MiCA rules will take effect on June 30, 2023. It will be fascinating to observe what happens with Binance at this point, and whether the lack of cooperation will have a detrimental impact on Binance’s capacity to comply with the new MiCA regulation.