Explainer: Binance, the giant crypto exchange under regulatory scrutiny

Binance offers a wide range of services, from crypto spot and derivatives trading to tokenised versions of stocks.
Binance offers a wide range of services, from crypto spot and derivatives trading to tokenised versions of stocks. PHOTO: REUTERS

LONDON (REUTERS) - Britain's financial watchdog has barred major cryptocurrency exchange Binance from carrying out regulated activities, the latest in a string of moves against the platform by the authorities across the world.

Binance's Singapore arm Binance Asia Services runs a popular trading platform in the country.

Here are answers to some key questions on Binance, one of the world's biggest exchanges, and what the latest regulatory moves mean.

1. How big is Binance?

Very. Trading volumes last month were US$662 billion, up almost ten-fold from July last year, according to data from CryptoCompare. On a single day in May, daily volumes hit US$92 billion, United States researcher Coin Metrics said.

Headed by Canadian Zhao Changpeng, Binance offers a wide range of services to users across the globe, from crypto spot and derivatives trading to tokenised versions of stocks. It also runs an exchange that allows users to trade directly with each other. Its own cryptocurrency, Binance Coin, is the fourth-biggest in the world.

Binance is growing in popularity in Britain, where its app has been downloaded 1.8 million times this year, and 2.2 million times in total, according to mobile data firm Sensor Tower.

2. Where's it based?

It is unclear. Binance's corporate structure is opaque, with its holding company widely reported to be registered in the Cayman Islands.

A Binance spokesman declined to comment on its location, saying it was "decentralised" and that it "works with a number of regulated entities around the world".

Binance has built up a huge following across the world, with channels on the Telegram social media app for users in more than 30 countries.

3. And it's coming under scrutiny from regulators?

Yes - in Britain and elsewhere. Britain's Financial Conduct Authority (FCA) said last week Binance's British arm cannot conduct any regulated activity, without saying why it took the action. Crypto trading is generally unregulated in Britain, though some activities such as offering crypto derivatives do require permission. Regulators including the FCA are increasingly worried over the standard of anti-money laundering checks at crypto exchanges and the risks crypto trading poses to consumers.

Singapore's central bank told The Straits Times on Thursday that it will follow up with Binance as appropriate in light of the actions taken by other regulatory authorities. Binance Asia Services - backed by Temasek unit Vertex Holdings - runs the Binance.sg platform, popular with Singaporeans trading in bitcoin and several other cryptocurrencies.

The Monetary Authority of Singapore noted that Binance Asia Services is exempted from holding a licence under the Payment Services Act for the provision of digital payment token services, as its licence application is being reviewed.

Japan's regulator said last week Binance was operating in the country illegally, while Germany's watchdog said in April it risked being fined for offering tokens connected to stocks.

In May, Bloomberg reported Binance is under investigation by the US Justice Department and Internal Revenue Service. Yet national regulators often struggle to rein in crypto exchanges based elsewhere, lawyers said.

"It's very difficult," said Linklaters senior lawyer Simon Treacy. "(The FCA) don't have jurisdiction over the whole of Binance's operations, so they use the point where they do have jurisdiction and put pressure on the business there."

The Binance spokesman said it takes its compliance obligations very seriously and is committed to following all regulatory requirements wherever it operates.

4. How will the UK move impact Binance?

Its influence may be limited. Beyond a loud warning to investors, the FCA has done all it can under its limited powers over an offshore exchange, experts say. "At the moment the method is to emphasise risks to investors in the UK of these services rather than to regulate them outright," said Shearman & Sterling lawyer Barney Reynolds. British investors can still access Binance via its main website, which the FCA does not have powers over.

Still, the FCA's demand that Binance seeks its permission to offer regulated services means it would be an offence to suggest to investors it was regulated in Britain.

Binance will also have to rethink plans announced last year to offer crypto trading services using pounds and euros on a platform regulated by Britain.

Google said this week it would allow only FCA-authorised entities to run ads for British-based financial products on its website, after repeated FCA calls to crack down on online fraud. Concern at banks over investment scams and fraud involving crypto exchanges may also impact Binance. Britain's Natwest Group last week capped the daily amount customers can send to exchanges, including Binance.

  • With additional information from The Straits Times