Author: Nicola Sharp
27 June 2023
2 min read
Nicola Sharp of financial crime specialists Rahman Ravelli considers the legal and regulatory issues the biggest cryptocurrency exchange in the world is facing.
The world’s largest cryptocurrency exchange Binance has found itself facing difficulties with the authorities in the Netherlands and France.
Binance has announced that it is set to quit the Netherlands after failing to obtain a licence from the country’s central bank. That announcement came shortly after it was reported that Binance is being investigated by French prosecutors.
Binance has stated that, from 17 July, Dutch residents will only be able to withdraw their assets from the platform. Further trading or paying deposits will no longer be possible. Binance has advised users in the Netherlands to withdraw funds from their accounts.
In France, it has been reported that prosecutors were investigating both Binance’s anti-money laundering procedures and the exchange’s advertising of its services in the country before it was registered with the French financial markets regulator, the Autorité des marchés financiers, in May 2022.
A Binance spokesperson confirmed that the company had been visited by French authorities, and added: “Binance, as always, was fully collaborative and we met our obligations accordingly. We continue to work closely with regulators and law enforcement agencies on all ongoing compliance requirements to uphold high standards.”
In the US, Binance is being sued by the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission after allegations that trading in crypto assets and derivatives was carried out without the appropriate regulatory approval. The company’s US platform, Binance.US, which is owned by its chief executive, Changpeng Zhao, is in discussions with the SEC to try and avert a total asset freeze. The company has said it would “grind to a halt” if a US judge grants the regulator’s request for an asset freezing order.
The SEC’s actions against Binance can be seen as the culmination of an increasingly aggressive dialogue between the two parties. But developments in the US – and to some degree, in France and the Netherlands – have to be viewed as more than a dispute centred on the activities of one cryptocurrency exchange, even if it is the world’s largest. With Binance handling investments with a total value of billions, any legal issues that restrict its activities will also have an effect on the cryptocurrency world as a whole and even the wider financial sector.
While the SEC’s efforts to hold Binance to account may be seen as a targeting of the exchange, it must also be viewed as part of the agency’s crackdown on the whole crypto sector. This has been driven, at least in part, by last year’s high-profile collapse of the Bahamas-based exchange FTX, whose founder Sam Bankman-Fried is now charged with securities fraud, money laundering and other offences. The SEC has also charged the US-based crypto exchange Coinbase with operating an unlicensed securities exchange, brokerage and clearing agency.
The action in the US came within days of both Binance’s Dutch and French difficulties becoming known and the Financial Conduct Authority emphasising the need for crypto firms to comply with the UK financial promotions regime. All such incidents can be seen as indicators of the authorities’ willingness to take a strict approach regarding what remains a rapidly-evolving sector.
There are some who believe there is a need for clarity when it comes to the cryptocurrency sector. The rate at which crypto has developed has made regulation of it the equivalent of playing catch-up on a worldwide scale, leading to gaps and inconsistencies. But regardless of these, those who operate in the cryptocurrency world have to ensure they are complying with all the obligations currently placed upon them.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.