The Financial Conduct Authority issued a warning against a subsidiary of cryptocurrency exchange Binance this week, stating that the company cannot conduct “regulated activity” in the United Kingdom. The announcement prompted many headlines to say that Binance was “banned” in the UK–but what does the warning really mean?
Simon Matthews, Binance’s director of public relations in Europe, told Finance Magnates that the term “ban” is “not technically accurate.”
“The FCA notice is in reference to permissions held by Binance Markets Limited which wouldn’t really constitute a ban,” Simon explained.
Binance: “We take a collaborative approach in working with regulators and we take our compliance obligations very seriously.”
Indeed, “We are aware of recent reports about an FCA UK notice in relation to Binance Markets Limited (BML),” he continued.
“BML is a separate legal entity and does not offer any products or services via the Binance.com website. Binance acquired BML May 2020 and has not yet launched its UK business or used its FCA regulatory permissions. For questions related to BML, please contact email@example.com.”
Simon also noted that “The FCA UK notice has no direct impact on the services provided on Binance.com. Our relationship with our users has not changed.”
“We take a collaborative approach in working with regulators and we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules and laws in this new space.”
How do the FCA’s actions impact Binance and the cryptocurrency industry as a whole?
A “battle against decentralization”?
While there have been many voices in the crypto industry that consistently say that new regulation is a positive thing for the industry, it seems that the FCA’s statement against Binance hasn’t struck the right chord.
“Governments that are early to provide the right clarity around crypto can allow their citizens to have more freedom, privacy, and control over their financial lives in the long term,” said Colin Pape, Founder of decentralized search engine Presearch, to Finance Magnates.
However, he believes that “the UK’s enforcement against Binance is simply another battle against decentralization.”
“The crypto ecosystem shares a common goal in making this technology accessible around the globe… Projects should continue paving a path that prioritizes the values of communities without a constant interruption of government interests,” he said.
The FCA’s “registration authorization” requirements
So far, the reasons for the FCA’s public warning against Binance are unclear. UK-based financial advisor James Finn, who is also the operator of SaferInvestor.com, told Finance Magnates that “As of Monday 28 June, The FCA has not issued a statement as to why it was taking measures against Binance.”
However, “What is known is that since January, the FCA has required that all firms offering cryptocurrency-related services to UK citizens must register with them.”
Indeed, in early 2020, the FCA set up a new “registration authorisation” for cryptocurrency companies. Under the rules of the authorization, cryptocurrency companies were required to apply for the right to continue their operations by January 9th, 2021; the deadline was then extended to July of 2021, and then again to March of 2022.
While Binance has not commented publicly on whether or not it has submitted an application for registration authorization with the FCA, or what the status of such an application might be, the FCA’s warning indicated that it has not authorized Binance nor its subsidiaries to operate in the UK.
“Binance Markets Limited is not permitted to undertake any regulated activity in the UK. This firm is part of a wider Group (Binance Group),” the FCA said in its official warning against the firm.
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“Due to the imposition of requirements by the FCA, Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA,” the statement said. “No other entity in the Binance Group holds any form of UK authorisation, registration or licence to conduct regulated activity in the UK.”
The UK’s regulatory “tipping point”
However, in spite of the fact that dozens of crypto firms have applied for the registration authorization, only a handful have been accepted; of more than 200 applications for authorization that have been submitted to the FCA this and last year; as of April of 2021, only four had been approved.
In April, Ian Taylor, the chair of crypto industry trade body CryptoUK, told Finance Magnates that this regulatory “logjam” had brought the UK’s crypto industry to a sort of “tipping point.”
Indeed, why aren’t companies getting approved? Ian pointed to two likely reasons during the interview–first, that “the quality of some applicants aren’t perhaps to the standards required.”
“This is understandable,” Ian explained. “It’s a new regime, and many participants haven’t operated within regulatory regimes previously.”
Secondly, Ian pointed to the fact that “the number of applications that the FCA received were far above the original forecast,” he continued. “We know that the FCA thought that they would receive 80 applications; they received almost three times that amount.”
“A significantly high number of businesses are not meeting the required standards under the Money Laundering Regulations.”
In early June, the FCA published a statement on the low number of accepted applications and its decision to postpone the registration deadline a second time.
“A significantly high number of businesses are not meeting the required standards under the Money Laundering Regulations,” the Authority wrote. “This has resulted in an unprecedented number of businesses withdrawing their applications.”
“The extended date allows cryptoasset firms to continue to carry on business while the FCA continues with its robust assessment.”
The statement also commented on investors’ level of risk in the cryptocurrency industry: “Many cryptoassets are highly speculative and can therefore lose value quickly. The FCA does not have consumer protection powers for the cryptoasset activities of firms,” the statement said.
“…It is unlikely that consumers will have access to the Financial Ombudsman Service or Financial Services Compensation Scheme, irrespective of whether a firm has temporary or full registration.”
Binance may face regulatory hurdles beyond the UK
Binance and other cryptocurrency firms could potentially face further regulatory struggles beyond the UK in the coming months
James Finn told Finance Magnates that “The Securities and Exchange Commission of The USA issued a similar warning to US consumers in April 2021 about [Binance] for money laundering and tax offences.” Indeed, Bloomberg reports that the United States SEC has investigated Binance Holdings, one of Binance’s entities, on the basis of dealings with money laundering and tax evasion.
Additionally, in June 2021, the Japanese Financial Services Agency (FSA) issued Binance its third warning in two years for trading in Japan without permission. In April, Thailand’s SEC issued a similar warning.
What are your thoughts on the FCA’s warning against Binance Markets Limited? Let us know in the comments below.