The UK’s Financial Conduct Authority (FCA) has issued what amounts to a ban on Binance, the world’s largest cryptocurrency exchange. The FCA joins other regulators from around the world moving to prohibit or heavily control the coin exchange amid a tide of global regulations aiming to tighten rules around cryptocurrency use. The ban also reflects concerns that Binance’s platform is being used by cybercriminals to launder the proceeds of attacks.
The FCA states that “due to the imposition of requirements by the FCA, Binance Markets Limited (BML) is not currently permitted to undertake any regulated activities without the prior written consent of the FCA”.
Binance, which supports trading of 500 different cryptocurrencies, is the biggest exchange of its kind by volume of trades. At the time of writing, trades worth $20bn had been registered on the platform in the last 24 hours according to CoinMarketCap, which tracks crypto exchange activity.
Binance responded to the move on Twitter yesterday, in a bid to assure customers about its attention to compliance.
We are aware of recent reports about an FCA UK notice in relation to Binance Markets Limited (BML).
BML is a separate legal entity and does not offer any products or services via the https://t.co/QILSkzx7ac website. (1/4)
— Binance (@binance) June 27, 2021
The tweets went on to explain that “The Binance Group acquired BML in May 2020 and has not yet launched its UK business or used its regulatory permissions. […] The FCA UK notice has no direct impact on the services provided on Binance.com” and that the company takes “a collaborative approach in working with regulators and [it takes its] compliance obligations very seriously”.
Despite this, UK customers using the platform are already feeling the effects, with cash withdrawals in sterling now unavailable, though clients can still withdraw their funds as Euros. As of tomorrow, June 30, the company will be obliged by the authority to print a notice prominently on its site that states “Binance Markets is not permitted to undertake any regulated activity in the UK.” Other parts of the company are permitted to continue operating.
Similar announcements have been made against Binance by several other countries so far this year. The International Revenue Service (IRS) and the Department of Justice in the US have both investigated the company following a report released by security company Chainalysis, which stated that 27.5% of illicit Bitcoin was received by Binance in 2019. More recently the Japanese authorities have also issued a warning against the use of the company’s coin exchange as Binance is not registered to carry out such business in Japan.
What’s behind the FCA Binance ban?
Though the FCA has not provided much detail on its reason for targeting Binance, it may be because the company has garnered a reputation for avoiding regulation explains Bharat Mistry, the technical director in UK and Ireland at security company Trend Micro. “If you look at Binance’s track record, it’s pulling out of lots of countries,” he says. “It seems to operate on a model of asking for forgiveness rather than sticking to the letter of the law.”
Binance operates on a model of asking for forgiveness rather than sticking to the letter of the law.
Bharat Mistry, Trend Micro
The exchange has proved attractive for ransomware gangs, which could also be a factor in the decision, says Mistry. “If [the regulations are] tight in one country, they’ll move to another country and they keep moving like that. And that works well for ransomware operators or people on the underground because they know they’re going to areas where the regulation won’t be enforced so strictly.”
Indeed, earlier this year Binance had to withdraw an application to register with the FCA because it was not able to comply with anti-money laundering legislation. “Binance has had a high number of large-scale cases of fraud or money laundering involving its platform,” explains Kayla Izenman, research fellow at the Royal United Services Institute specialising in cryptocurrencies.
Why do regulators hit crypto exchanges?
Crypto exchanges are often banned by regulators because the decentralised nature of the currencies themselves means they are difficult to police, says Izenman. “The problem with crypto and regulating and operating an exchange is that it’s an international piece of technology,” she says. “So the only thing that regulators can get at is the centralised entities operating in the space, like an exchange. UK regulators could never say ‘you can’t engage in crypto activity’ because I can send it to whoever I want, wherever I want, even if that’s in a sanctioned country or a terrorist wallet.”
What regulators can do, Izenman says, is get at the exchanges that are facilitating that trade. “[The FCA] knows that that’s where their entry point is and they know that that’s where the options are to crack down on any of this activity,” she adds.
For its part, Binance says it has been making efforts to stay on the right side of the authorities. In May the company hired members of the Financial Action Task Force, an inter-governmental organisation set up to combat money-laundering, to join its regulatory strategy team, and last week it was instrumental in the arrest of six members of the active ransomware group CLOP in Ukraine.