Last year, Binance traded approximately $5 trillion for its 13.5 million customers — and yet, it has no official global headquarters.
The question is: how do you regulate such a massive online business? It’s not easy.
That’s the predicament the UK’s financial regulator FCA (Financial Conduct Authority) is grappling with. Recently, the regulator imposed a ban on UK’s arm of Binance from undertaking regulated trading activities.
Later, FCA said Binance complied with all their requirements, but the ban stays on.
However, the supervisory body is struggling to oversee Binance. This highlights the regulator’s dire need for more teeth to bite Binance — and save UK retail investors from sour deals.
Reasons for FCAs Ban
What particularly fuels the watchdog’s anger is Binance was reluctant to answer basic questions like:
- Who is behind the Binance.com online brand?
- What’s the group’s primary structure?
These questions were part of money-laundering checks.
For FCA to carry out comprehensive supervisions, knowing who is behind the business, and links to other entities (if any) is necessary — if not a basic requirement.
Then again, being open with a watchdog is an FCA principle of doing business.
These conditions triggered the regulator to impose a ban on the world’s biggest crypto exchange. And went on to brand them “incapable of being supervised”.
Idea to Operate Without a System is Naïve
The outcome of the ban seems like a big shrug off from the mammoth crypto exchange.
First, Binance included a warning on its website (largely directed to UK’s retail investors) as instructed by the watchdog.
Unfortunately, it has little effect on UK customers who are still buying and selling digital assets via the website — which remains unregulated for now. In short, the warning didn’t work at all. The shrug was a subtle sneer to FCA.
Even so, other regulated financial communities are watching and might take action. While crypto is decentralized and can operate outside external policing, the idea it can work without regulators is naïve.
That’s because illegal activities such as money-laundering or funding of terrorism overseas can easily thrive in unregulated crypto exchanges.
The FCA ban has now prompted some hedge funds to step back from the crypto exchange. HSBC and Barclays also announced they’ll prevent UK customers from sending funds to Binance.
Binance action is seen as a tactical mistake not just in the UK but also in the US. Regulators, particularly in those two countries, do talk to each other. If anything, Binance is making US regulators even more suspicious. And their actions attract stiffer penalties.
