No-Go for Binance: License Snub, Regulatory Turmoil and More

It never rains, but it pours. This saying is pretty apt in describing the predicament that Binance is in.

Earlier this month, Binance, alongside its CEO and Co-Founder Changpeng Zhao (CZ), founds itself at the centre of multiple charges levied by the United States (US) Securities and Exchange Commission (SEC). The gravity of the situation is evident as the US securities watchdog accuses them of operating unlawful trading platforms, offering crypto asset securities without proper registration, and mingling customers' funds in a dubious manner. As if that were not enough, the SEC alleges that Binance functioned as an unauthorised exchange, broker-dealer, and clearing agency.

And merely two months prior, the US Commodity Futures Trading Commission (CFTC) also made similar allegations against Binance and CZ, casting a shadow of doubt over the platform's operations.

The US District Court judge has handed down a ruling just a few days ago, dismissing Binance's attempt to restrict the SEC from making public statements about their case.

It was announced that the exchange must prepare its defense by 21 September, while the SEC will be permitted to provide counter arguments on 7 November. This decision marks another setback in a series of challenges for the renowned exchange.

Slammed with Forced Exits from Countries in the EU

While Binance has long been a dominant player in the cryptocurrency realm, recent weeks have seen the platform grappling with a series of blows. From navigating forced exits and investigations in European countries to facing the turmoil of mass layoffs in the US, the exchange has been navigating stormy waters.

To elaborate, since the SEC sued Binance, the Financial Conduct Authority (FCA) in the United Kingdom (UK) has taken decisive action, revoking several permissions previously granted to the exchange's affiliate. This move signals a dramatic shift in the exchange's presence in the UK.

But that is not all ─ Binance's troubles have extended to other countries in the European Union (EU).

On 16 June, the exchange made the tough decision to withdraw its services from the Dutch market. The exit comes as a result of a failed attempt to secure a coveted virtual asset service provider (VASP) license, leaving the exchange with no option but to part ways with Dutch customers.

Effective immediately, Binance will no longer accept new customers from the Netherlands, closing the doors to new accounts in the region. For existing Dutch customers, the landscape is changing too – starting from 17 July, they will only be able to withdraw their assets from the Binance platform. All other activities, such as making purchases, conducting trades, or initiating deposits, will be unavailable.

Around the same time, Binance's French unit was under investigation by local authorities for the "illegal" provision of digital asset services and "acts of aggravated money laundering," according to the Paris public prosecutor's office.

The investigation relates to illegally operating as a digital asset service provider before it received regulatory approval in May 2022 and "aggravated money laundering by taking part in investment operations, concealment and conversion, the latter being carried out by perpetrators of offenses having generated profits.”

And just two days prior, it made a move to withdraw from Cyprus, as indicated in a listing with the Cyprus Securities and Exchange Commission. The exchange is currently under review for deregistration, timed ahead of the forthcoming European Union's Markets in Crypto Assets (MiCA) legislation, slated to become law in the coming year. Curiously, the regulator's website does not provide any explicit explanation for Binance's deregistration.

Then on 23 June, Belgium's top markets regulator, the Financial Services and Markets Authority (FSMA), issued a stern notice. According to the announcement, the FSMA has ordered Binance to immediately halt its services to local customers.

The crux of the issue lies in Binance's alleged activities of "offering and providing exchange services in Belgium between virtual currencies and legal currencies, as well as custody wallet services, from countries that are not members of the European Economic Area." Such actions, the regulator contends, breach a clear prohibition in the region. "The FSMA has therefore ordered Binance to cease, with immediate effect, offering or providing any and all such services in Belgium," the notice said.

Binance has also reportedly withdrawn its license application with the Financial Market Authority of Austria. According to FinanceFWD on 26 June, the decision to withdraw the Austrian application was made some time ago, with sources familiar with the matter shedding light on the situation. Rumours swirl, suggesting that the Austrian regulator may have exerted behind-the-scenes pressure on the exchange.

When contacted to comment on FinanceFWD’s report on the withdrawn Austrain application, a Binance spokesperson said, “We are unable to share details of our conversations with regulators, however we remain committed to acting in compliance with our obligations wherever Binance operates.”

Troubles Brewing in Other Non-EU Countries
Last month, Binance took the decision to cease its operations in Canada. The exchange cites the challenging regulatory environment as the primary reason for this significant move. In its tweet, it said, “We had high hopes for the rest of the Canadian blockchain industry. Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time.”

On 18 May, Binance Australia made an announcement that sent shockwaves through the cryptocurrency community. It revealed that its dollar services were abruptly suspended, a consequence of its payments provider, Zepto, being instructed to cease support for Binance by Cuscal—the partner banking and payments provider of Zepto.

The fallout from this decision has been far-reaching, affecting approximately one million Binance customers residing in Australia. As Binance regional manager Ben Rose addressed an audience at the Australian Blockchain Week on 26 June, the magnitude of the impact became apparent. He stated that, “We received 24 hours’ notice of debanking at 11:30 pm in the evening, that was later turned into 12 hours, and so we had our banking cut off…The reasons given were not entirely clear and didn’t look that great in the media.”

Anything That Can Go Wrong, Will Go Wrong
Germany's financial regulator, BaFin, has dealt a significant blow to Binance, reportedly denying the exchange's application for a custody license. The news broke yesterday through FinanceFWD. However, the situation appears somewhat murky as the report indicates uncertainty about whether the denial is a formal decision or just an intention to deny, relying on sources close to the matter.

In an emailed statement, a Binance spokesperson clarified, “While we are unable to share details of conversations with regulators, we continue to work to comply with BaFin‘s requirements. As expected, this is a detailed and ongoing process. We are confident that we have the right team and measures in place to continue our discussions with regulators in Germany.”

In another unsettling development, Binance's euro banking partner, Paysafe, is set to sever ties with the crypto exchange starting 25 September. Paysafe's move follows a strategic review and will notably impact euro-denominated bank transfers to and from Binance facilitated through the Single Euro Payments Area (SEPA) network. It is worth noting that Paysafe had already halted support for GBP transfers to Binance back in May.

The spokesperson said, "Binance will be changing the provider for EUR deposits and withdrawals via Bank Transfer (SEPA). Our current partner, Paysafe, will no longer be providing these services to Binance users from September 25, 2023.”

Deputy Alfredo Gaspar, a prominent member of the Brazilian Chamber of Deputies, has made a compelling move in the ongoing investigation into alleged pyramid schemes plaguing the country. With the spotlight on the cryptocurrency landscape, Deputy Gaspar formally requested on 21 June, the summoning of Guilherme Haddad, the director of Binance Brazil, to testify before the Brazilian parliament as part of the Parliamentary Commission of Inquiry (CPI).

Adding to the intrigue, the Securities and Exchange Commission of Brazil has already been putting pressure on Binance regarding its offering of Bitcoin futures products to Brazilian customers.

These back-to-back challenges have put Binance under the spotlight.

Under the Scrutiny of a Magnifying Glass
As the storm clouds gather over Binance its challenges stretch far beyond the borders of the US. Regulatory turbulence in Europe has emerged as a consequential outcome of the mounting pressure the exchange faces in the US. The ripples from this high-stakes legal showdown have already made their mark on the exchange's native cryptocurrency, BNB, which has witnessed a significant decline of over 20% since the announcement of the lawsuit.

Legal experts believe that Binance — alongside Coinbase and other exchanges and Web3 organisations currently under the regulatory magnifying glass — faces a steep uphill battle. The outcome of these lawsuits could set a precedent for how digital asset exchanges are regulated in the US in the future and raises concerns about the broader implications for the cryptocurrency industry in Europe.

With mounting scrutiny and weighty allegations, Binance's path forward seems unclear.