The UK financial regulator has conceded it is "not capable" of properly supervising Binance despite the "significant risk" posed by the cryptocurrency exchange's products, which allow consumers to take supercharged bets.
In a supervisory notice two months after starting a crackdown on the exchange, the Financial Conduct Authority (FCA) – one of the most influential financial watchdogs in the world – repeated its grave concerns over Binance's governance and products.
But it added that Binance’s UK affiliate had “refused” to respond to some of its basic queries, leaving it with few avenues to oversee the sprawling group, which has no fixed headquarters yet offers its services around the world.
The statement underscores the scale of the challenge facing authorities in tackling potential risks to consumers buying often unregulated products through nimble cryptocurrency businesses, which can often circumvent national bans by giving users access to facilities based overseas.
Risk to consumers
“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 FCA said in the notice published on its website. The company did not immediately comment on the notice.
The UK authority said one of Binance’s London-based affiliates, which is registered with the watchdog as an investment company, had supplied insufficient information on the broader group’s products offered in the UK, the global exchange’s business or wider products offered on Binance.com, which sits outside the FCA’s purview.
That meant Cayman Islands-incorporated Binance “was not capable of being effectively supervised”, it said.
In June, the FCA kicked off a string of censures by regulators across the world against the crypto exchange – one of the biggest in the world – by banning Binance’s UK affiliate from offering regulated products in the country.
UK consumers can still trade derivatives and other regulated products on Binance.com. The exchange has no formal headquarters and uses affiliates in different jurisdictions to access the conventional financial banking system.
Compliance
Changpeng Zhao, its chief executive, has vowed to ramp up compliance, while financial watchdogs question the rigour of its policies to prevent money laundering and the financing of terrorism on its platform.
Binance had been building a separate, ring-fenced UK exchange through an FCA-regulated unit, called Binance Markets Limited, that would have provided trading in cryptocurrencies against the pound and euro, according to former employees. It had applied to become a registered UK crypto firm, but pulled that application in May.
The FCA said it had taken issue with Binance’s answers to queries it raised this year.
“The FCA considers that the firm’s responses to some questions amounted to a refusal to supply information, and that the firm has failed to respond adequately to the FCA’s information requirements,” it said.
It also said Binance had declined to provide even basic information, such as “trading names and functions for all group entities globally”.
The exchange has indicated to the FCA that its UK operations are separate from other parts of the global group. But internal Binance documents seen by the Financial Times say “Binance is operating an FCA regulated business” and notes “consumers will be subject to the FCA regulatory guidelines”.
The FCA notice on Wednesday also said Binance’s UK arm did not have any approved senior executives, although it had submitted applications for executive director, compliance oversight and anti-money laundering officer roles.
The group earlier this month said it had hired former US Internal Revenue Service special agent Greg Monahan as its global anti-money laundering reporting officer. It has also recently brought in former eToro executive Jonathan Farnell as director of compliance.
Mr Zhao told journalists last month Binance was “hiring a very big team of people with a very strong compliance background”. – Financial Times
