Explanation: Binance, the giant crypto exchange under regulatory control

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LONDON, July 1 (Reuters) – UK financial watchdog has banned major cryptocurrency exchange Binance from regulated activities, the latest in a series of moves against the platform by authorities around the world whole.

Here are the answers to some key questions about Binance, one of the world’s largest exchanges, and what the latest regulatory developments mean.

WHAT IS THE SIZE OF BINANCE?

Very.

Transaction volumes in June stood at $ 662 billion, nearly ten times more than in July 2020, according to data from CryptoCompare. In a single day in May, daily volumes reached $ 92 billion, US researcher Coin Metrics said.

Led by Canadian Changpeng Zhao, Binance offers a wide range of services to users around the world, from spot trading of crypto and derivatives to tokenized versions of stocks.

It also manages an exchange which allows users to exchange directly with each other. Its own cryptocurrency, Binance Coin, is the fourth largest in the world.

Binance is growing in popularity in Britain, where its app was downloaded 1.8 million times in 2021, and 2.2 million times in total, according to mobile data company Sensor Tower.

WHERE IS IT BASED?

It’s unclear.

Binance’s corporate structure is opaque, with its holding company largely registered in the Cayman Islands. A Binance spokesperson declined to comment on its location, saying it was “decentralized” and “works with a number of regulated entities around the world.”

Binance has built a huge following across the globe, with channels on the Telegram social media app for users in more than 30 countries.

AND IS IT UNDER THE CONTROL OF REGULATORS?

Yes – in Britain and elsewhere.

The UK Financial Conduct Authority (FCA) said last week that the UK branch of Binance could not conduct any regulated activity, without saying why it took the step. Read more

Crypto trading is generally unregulated in Britain, although some activities such as offering crypto derivatives require authorization.

Regulators, including the FCA, are increasingly concerned about the standard of anti-money laundering controls in crypto exchanges and the risks crypto trading poses to consumers.

The Japanese regulator said last week that Binance was operating illegally in the country, while the German watchdog said in April it was facing a fine for offering tokens linked to stocks. In May, Bloomberg announced that Binance was under investigation by the US Department of Justice and the Internal Revenue Service. Read more

Yet national regulators often struggle to curb crypto exchanges based elsewhere, lawyers said.

“It’s very difficult,” said Simon Treacy, senior lawyer at Linklaters. “(The FCA) does not have jurisdiction over all of Binance’s operations, so they use the point where they have jurisdiction and put pressure on the company there.”

Binance spokesperson said it takes its compliance obligations very seriously and is committed to meeting all regulatory requirements wherever it operates.

HOW WILL THE UK IMPACT BINANCE?

Its influence may be limited.

Beyond a strong warning to investors, the FCA has done all it can within its limited powers over an offshore exchange, experts say.

“Right now the method is to focus on the risks to UK investors of these services rather than outright regulating them,” said Barney Reynolds, lawyer at Shearman & Sterling.

UK investors can still access Binance through its main website, over which the FCA has no control.

Nonetheless, the FCA’s request to Binance for approval to offer regulated services means that it would be an offense to suggest to investors that it was regulated in the UK.

Binance will also have to rethink plans announced last year to offer crypto trading services using pounds and euros on a UK-regulated platform.

Google said this week that it would only allow entities authorized by the FCA to serve ads for UK-based financial products on its website, after repeated calls from the FCA to tackle online fraud.

Banks’ concerns about investment scams and fraud involving crypto exchanges may also impact Binance. UK group Natwest (NWG.L) capped the daily amount clients can send to exchanges, including Binance, last week. Read more

Reporting by Tom Wilson and Huw Jones; Editing by Kirsten Donovan

Our Standards: Thomson Reuters Trust Principles.

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