Last updated on January 20th, 2022 at 04:18 pm
In the latest episode in the ongoing public saga, the UK’s Financial Conduct Authority (FCA) has published a Supervisory Notice in which it declared that the world’s largest cryptocurrency exchange, Binance, was not capable of being effectively supervised. The FCA’s Notice states:
“Based upon the Firm’s engagement to date, the FCA considers that the Firm is not capable of being effectively supervised. This is of particular concern in the context of the Firm’s membership of a global Group which offers complex and high-risk financial products, which pose a significant risk to consumers.”
The Notice also provides more context around the FCA’s previously announced restriction on Binance’s UK subsidiary, Binance Markets Limited. According to the Notice, Binance refused to provide the information requested about its corporate group’s global business model, the wider products it offers, and (initially) its stock tokens.
In response to the request regarding its global business model, Binance is quoted as having responded that it did “not consider these questions to be appropriate, or in any way relevant” to the UK’s entity’s application.
Binance’s alleged failings
The failings and risks that the FCA identified in respect of Binance include:
- Failing to carry out any regulated activity for a period of at least 12 months
Having acquired the UK entity (and renamed it as Binance Markets Limited), Binance made a “Change in Control ” application to the FCA, which was approved in May 2020. However, it seems Binance has not used any of the regulatory permissions since then – something UK financial regulators typically frown upon.
- Refusal to answer questions about a wider global business model
According to the FCA’s Notice, when asked to provide the trading names and functions for all its group entities globally, Binance in effect told the FCA it was none of its business, by responding that it did not consider the information request to be appropriate or relevant to its UK subsidiary’s application.
- Refusal and/or inability to provide information about wider products offered via Binance.com
The FCA asked Binance to “identify all the legal entities with which a UK customer enters a relationship when they use the Binance.com crypto exchange” to which Binance countered that the information requested was irrelevant to the FCA as the website was operated from outside the UK.
- Failure to answer questions about Binance Stock Tokens
When asked about its Stock Tokens, Binance is alleged to have initially failed to explain the legal and regulatory status of the product; but following a second request, Binance provided additional information according to the FCA.
The FCA’s actions
In view of its findings, the FCA has decided to impose “requirements” on Binance’s UK subsidiary effectively banning it from conducting regulated activities in the UK, including requiring Binance to place a notice on its binance.com website reflecting this.
However, this is not as bad as it sounds since Binance’s “plain vanilla” crypto exchange is not currently required to be regulated in the UK. Furthermore, its derivatives products, which are indeed subject to regulation in the UK, are provided from Binance.com, a non-UK-based website. However, the FCA bemoaned the fact that there was no restriction on UK-based customers purchasing derivative products via the binance.com website.
Impact on Binance
A number of UK banks have already severed ties with Binance following the FCA’s recent actions. This resulted in UK customers having issues withdrawing and depositing in GBP for a while.
In Conclusion…
- Unless Binance is able to repair its relationship with the FCA in the near future, the FCA can go even further. The FCA may, for instance, choose to cancel the regulatory permissions of Binance’s UK subsidiary altogether, thereby negating any planned future activities by that entity.
- The FCA may also seek to take further action in respect of Binance’s ability to provide services to UK-based customers. This would have wider implications for the crypto sector.
- The story of the FCA vs Binance is not yet done. We think there are more episodes to come.
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