Binance to Hire 1,000 New Staff as Regulatory Costs Soar – Why an IPO Isn't on the Table?

Binance Expands Compliance Efforts Amidst Regulatory Challenges

In a significant move reflecting its heightened regulatory focus, Binance Holdings is set to recruit an additional 1,000 employees in 2024, primarily targeting compliance roles.

The expansion plan is largely driven by the need to enhance compliance, with many of the new positions dedicated to bolstering the company's compliance efforts.

Currently, Binance's compliance team stands at approximately 500 employees, but by the end of 2024, the company plans to increase this number to 700.

This strategic decision is part of Binance’s broader effort to manage its rising regulatory expenditures, which have surged to over US$261 million.

This expenditure includes costs related to a plea agreement with U.S. authorities, which has driven up compliance requirements substantially.

Richard Teng, Binance’s CEO, elaborated on these developments during an interview with Bloomberg News in New York on 21 August.

Source: Bloomberg

Teng, who has a background in regulatory roles from his time with the Monetary Authority of Singapore and the Abu Dhabi Global Market, highlighted the growing importance of regulatory compliance in the crypto industry.

Teng noted:

“I’ve been a regulator all my life. Government agencies are important.

Although Teng did not confirm whether he met with the Securities and Exchange Commission (SEC) during his U.S. visit, the SEC’s ongoing lawsuit against Binance remains a critical challenge.

The U.S. plea deal, which involves a hefty US$4.3 billion penalty, was a response to failures that allowed misuse of the exchange by criminals and terror groups.

This settlement also mandates years of compliance monitoring by the Department of Justice (DOJ) and the U.S. Treasury Department’s Financial Crimes Enforcement Network.

In light of these developments, Binance is now under the scrutiny of U.S.-appointed monitors, including Forensic Risk Alliance and Sullivan & Cromwell, who are tasked with assessing the company's financial statements and transaction tracking systems.

Teng highlighted the increasing number of law enforcement requests Binance has managed this year, which have risen to 63,000 from 58,000 in 2023.

This surge in requests reflects the mounting regulatory scrutiny the company faces.

Binance’s compliance expenditure, which was US$158 million two years ago, is expected to rise further as the company continues to navigate its complex regulatory landscape.

Navigating Legal and Operational Hurdles

Binance’s efforts to rectify its past regulatory missteps include a comprehensive restructuring under Teng’s leadership.

A recent ruling allowed the bulk of the SEC lawsuit to proceed, with the SEC accusing Binance and its co-founder Changpeng "CZ" Zhao of mishandling customer funds, misleading investors, and violating securities rules.

Although Zhao has since been sentenced to a four-month prison term as part of the plea deal, Teng has asserted that Binance will continue to contest these claims.

“We are very early in the journey,” Teng said, referring to the ongoing assessments by the appointed monitors.

Since Teng’s appointment, following co-founder Changpeng "CZ" Zhao’s departure as part of the plea deal, Binance has revised its operational model, tightening the requirements for new token listings and spinning off its venture arm.

Despite these changes, Binance has yet to establish a global headquarters or release fully audited financial statements.

Dubai, Abu Dhabi, and another unnamed city are being considered as potential locations for this headquarters.

Teng’s remarks suggest that the company remains profitable despite its regulatory hurdles.

He noted that Binance’s financial stability eliminates the need for fundraising or an initial public offering (IPO) at this time:

“We are in very strong financial shape, so there's really no need for us to consider any fundraising or an IPO at this time. Since the fifth month of Binance's operation, it has been profitable, and it has been very prudent in terms of spending. So [an IPO] is not a subject that has come up.”

The company’s focus remains on maintaining its profitability while navigating through complex regulatory landscapes.

Richard Teng's Transition and CZ's Departure

Last year, Richard Teng became CEO of Binance under complex circumstances following CZ’s departure due to a multi-billion-dollar settlement with U.S. authorities.

This transition marked a significant shift from a founder-led organisation to one now guided by a board of directors.

Since then, Teng has concentrated on transforming Binance’s governance and enhancing its regulatory compliance.

Although CZ is no longer involved in the day-to-day operations or leadership of Binance, his previous leadership left a legacy that Teng is navigating as he steers the company toward a more structured and globally compliant future.

Co-founder Yi He, CZ’s partner and mother of his three youngest children, remains an integral part of Binance's management team.

She oversees the human resources department and continues to play a critical role in the company’s operations.

Global Focus and Regulatory Relations

Teng’s approach to regulatory relations involves a strategic focus on markets outside the U.S.

The company is prioritising expansion in regions where it can work constructively with local regulators. “At this point in time, what we're really focusing on is markets outside of the U.S.,” Teng said.

This international focus is part of Binance’s broader strategy to build a more transparent and compliant operational framework.

Despite the ongoing scrutiny and legal challenges, including the SEC lawsuit and the recent jail sentence of Zhao, Binance is committed to overcoming these obstacles.

Teng emphasized that the company’s goal is to build a sustainable and robust platform that aligns with global regulatory standards.

The company’s efforts to address past mistakes and move forward in a regulated manner are central to its strategic vision for the future.

Binance Blocks $2.4 Billion in Scam Losses

Apart from regulatory challenges, the crypto exchange is also making significant strides in fraud prevention.

From January to July 2024, Binance has protected over $2.4 billion in potential losses from scams and fraud, safeguarding more than 1.2 million users worldwide.

The exchange’s hybrid risk management system, combining AI and manual reviews, played a crucial role in this achievement.

Notably, $1.1 billion of the prevented losses were linked to suspected crypto scams during withdrawals.

Binance’s CTO, Rohit Wad, emphasised the significance of this success, highlighting the company's commitment to enhancing security.

Despite these efforts, users are urged to stay vigilant and practice strong security measures to protect their assets.

A Defining Moment for Binance

Binance’s relentless push for compliance amidst rising regulatory scrutiny illustrates a pivotal moment for the cryptocurrency industry.

By investing heavily in compliance and fraud prevention, Binance is not just navigating its immediate challenges but is potentially setting new standards for the industry.

The company's substantial regulatory spending and strategic shift under Richard Teng signal a broader movement towards increased transparency and accountability in crypto.

As Binance contends with legal battles and operational restructuring, its actions could reshape how regulatory frameworks evolve and influence industry practices.

The broader implication is clear: Binance’s aggressive stance on compliance might become the benchmark for how other crypto giants align with global regulatory expectations.