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Zhao Changpeng, Binance’s CEO, has raised the prospect of being succeeded by a global executive with a strong regulatory background to help Binance pivot towards becoming a regulated financial institution. Photo: Reuters

Cryptocurrency exchange Binance wants to ‘be a financial institution’, seeks licences to undo regulatory red flags

  • ‘In the last four years, we were a start-up. Now, we want to be a financial institution,’ CEO says
  • Exchange subject to regulatory warnings, investigations and bans in jurisdictions ranging from the US and the UK to Hong Kong
SFC

Binance, the world’s largest cryptocurrency exchange, said it was seeking licences and multiple headquarters in response to a slew of warnings issued in several jurisdictions this year.

Zhao Changpeng, the exchange’s CEO, even raised the prospect of being succeeded by a global executive with a strong regulatory background to help Binance pivot towards becoming a regulated financial institution. The start-up was on the lookout for such a candidate but Zhao, who has been CEO for four years, did not say when he would step down.

“In the last four years, we were a start-up. Now, we want to be a financial institution,” he said during a media conference call late on Tuesday.

The pivot by Binance, which operates in more than 180 countries and claims it has an average daily trading volume of US$2 billion, follows a slew of regulatory warnings, investigations and bans in jurisdictions ranging from the United States, the United Kingdom, Germany, Japan, Italy and Lithuania to Hong Kong. Zhao said the move had become necessary after regulators’ positions on cryptocurrencies and virtual assets globally had become clearer in recent years.
In the US, Binance is being investigated by the justice department and the Internal Revenue Service over money laundering and tax issues, according to media reports. In the UK, Binance Markets, a unit, faces an outright ban by the Financial Conduct Authority after it found that it appeared “to be offering” products and services to UK customers through its website. The ban followed the withdrawal by Binance in May of an application related to a UK anti-money-laundering directive, according to media reports, which suggests it fell short of UK licensing requirements.

06:54

Is cryptocurrency too risky for China?

Is cryptocurrency too risky for China?

But the exchange claimed it has been making efforts to combat money laundering and suspicious fund flows. These include lowering its daily withdrawal limit to US$2,000, from two bitcoin a day, according to Samuel Lim, Binance’s chief compliance officer. Bitcoin was trading at US$39,807 on Wednesday.

“We continue to build a robust compliance programme,” said Jonathan Farnell, director of compliance at Binance. This will include adopting the same anti-money-laundering principles that other financial institutions follow, he added.

In Hong Kong, the Securities and Futures Commission (SFC) issued a warning this month stating that Binance was not licensed or registered to offer securities, which is a regulated activity in the city. The SFC was referring to Binance tokens based on stocks such as Apple and Tesla, which were being marketed to investors in Hong Kong, as reported by the Post in April. Binance took down the business on the same day.

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Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments

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That has made it challenging for Binance to attempt getting a licence in Hong Kong, according to Gaven Cheong, a partner at law firm Simmons & Simmons. “Ultimately, if they have to admit that they had done things in breach of the Securities and Futures Ordinance in Hong Kong, this may affect the regulator’s view of whether they would be fit and proper as defined under the ordinance to be licensed in Hong Kong,” he said.

Binance says it does not maintain an exchange operation in Hong Kong. It is currently applying for a licence in Singapore, where Zhao is reportedly currently based.
In an emailed response to the Post, the SFC declined to comment on the prospect of Binance being eligible for a virtual asset trading platform licence, an opt-in licensing framework that has been in place since 2019.
To be eligible for such licensing, an exchange must offer at least one security token on its platform, a business Zhao said on Tuesday that Binance had discontinued. Hong Kong’s licensing regime also bans exchanges from offering leverage to customers, which Binance does offer.

Regulators globally have been clear about what constitutes a security, which remains a regulated activity in many jurisdictions and cryptocurrency industry players should be expected to play by the rules, said Henry Chong, the CEO of Fusang Corp. The start-up owns Fusang Exchange, which runs a licensed digital stock exchange that offers the trading of security tokens in Labuan, a special economic zone in Malaysia.

“While there is no question about what constitutes a security, there is definitely room for more regulatory clarity about what constitutes a security token. Some of the security tokens offered by cryptocurrency firms today are more akin to complex derivatives, rather than shares,” Chong said.

This article appeared in the South China Morning Post print edition as: Binance seeks to mend regulatory ties
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