Behind Binance’s “siege”, cryptocurrency regulation is tightening globally

Source: Cailianshe | Blockchain Daily

Reporter: Zhang Yangyang

In the past two months, Binance has been besieged by regulators in many countries. The latest news is that on July 30, the Securities Commission of Malaysia also took enforcement action against Binance on the grounds of illegally operating a digital asset exchange.

Amid a series of regulatory storms, Binance has attempted to take a series of measures to cater to the regulation of various countries, such as reducing leverage, limiting withdrawal limits, and launching a tax filing tool API.

Binance founder Zhao Changpeng has repeatedly stated that Binance will embrace regulation and compliance. He even tried to find a new Binance CEO, "I hope this CEO has a very strong regulatory background."

Many industry insiders told Blockchain Daily that even if Binance's decentralized business system is difficult to block technically, the responsible person can still be traced back to the system, so it will face supervision from all sides. At the same time, this also indicates that countries are becoming more and more stringent in their regulatory attitude towards the digital asset industry, and compliance will be a necessary prerequisite for the development of the blockchain industry.

Accused of operating illegally in Malaysia

Recently, the Securities Commission of Malaysia (SC) issued an announcement on its official website, taking enforcement action against Binance for illegally operating the Digital Asset Exchange (DAX).

The announcement said that under Sections 7(1) and 34(1) of the Capital Markets and Services Act 2007, all DAX operators must be registered as Recognized Market Operators (RMO) by the SC.

In fact, the Securities Commission of Malaysia included Binance on its investor alert list in July 2020. This enforcement targets Binance Holdings Limited (registered in the Cayman Islands), its CEO Changpeng Zhao, and three other Binance entities, namely Binance Digital Limited (registered in the United Kingdom), Binance UAB (registered in Lithuania), and Binance Asia Services Pte Ltd (registered in Singapore).

Currently, the Malaysian SC has ordered four Binance entities to disable the Binance website and mobile application in Malaysia within 14 working days from July 26, 2021; immediately stop all media and marketing activities; and immediately restrict Malaysian investors from accessing Binance’s Telegram group.

“As the CEO of Binance Holdings Limited, Changpeng Zhao is also specifically ordered to ensure that the above instructions are implemented.”

The Malaysian SC also advised investors to stop trading and investing through the illegal DAX, urging those who currently have accounts on Binance to immediately stop trading through its platform and withdraw all investments.

A reporter from Blockchain Daily learned that cryptocurrency-related activities are legal in Malaysia, but must be subject to dual supervision by the local central bank and the Securities and Exchange Commission.

In 2001, Bank Negara Malaysia (BNM) introduced the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act to combat money laundering and terrorist financing.

On February 27, 2018, BNM updated the regulations to include cryptocurrency activities within its regulatory scope. The new regulations require cryptocurrency exchanges in Malaysia to operate in strict accordance with KYC requirements and conduct due diligence on all customers.

On January 14, 2019, the Malaysian SC also issued the Capital Markets and Services (Securities Regulations) (Digital Currency and Digital Token) Act 2019. The Act classifies crypto assets such as digital currencies and digital tokens as securities and places them under the authority of the Securities Commission and regulated by the SC. Anyone operating a digital asset trading platform must obtain approval from the SC.

Regarding the enforcement of the Malaysian SC, Binance responded to the reporter of Blockchain Daily: "We have noticed the notice from the Malaysian SC and can confirm that Binance.com does not operate in Malaysia. We will assist regulators from all over the world to jointly find the best way to cooperate."

Being “encircled and suppressed” in many countries

In the past month or two, Binance has experienced a "siege and blockade".

June 25. The Japanese Financial Services Agency issued a warning to Binance, saying it provided crypto services without registration.

On the same day, the UK Financial Conduct Authority (FCA) also issued a warning to Binance, stating that Binance is not allowed to conduct any financial business regulated by the FCA in the UK and is not allowed to provide loan services to individual customers.

Even in the Cayman Islands, where it is registered, it was not spared. On July 1, the Cayman Islands Monetary Authority posted on its official website that Binance did not obtain a license to operate a cryptocurrency exchange, and the authority was investigating whether Binance and related companies were operating any activities in or from the Cayman Islands that might fall within the scope of the authorities’ supervision.

On July 2, the Thai Securities and Exchange Commission initiated criminal proceedings against Binance and investigated suspected unlicensed operation of digital asset business. The authorities stated that Binance provided unlicensed crypto trading services by matching orders or arranging counterparties through its website, or providing systems or facilitating agreements.

On the same day, the Monetary Authority of Singapore also stated that it was reviewing Binance’s application for a crypto service license and would follow up on the actions of regulators in other countries as appropriate.

It is worth noting that cryptocurrency-related activities are legal in the above regions, but they must be registered locally to comply with regulatory requirements.

Taking the UK as an example, the FCA requires digital currency exchanges to register to comply with anti-money laundering regulations from January 2020. In addition, from June 2018, any cryptocurrency or ICO token issuance, derivatives trading, arranging transactions, consulting or providing other services will require FCA authorization.

According to information obtained by a reporter from Blockchain Daily, Binance's entity company business types in the UK and Singapore are not cryptocurrency related.

The British government website GOV.UK shows that Binance Digital Co., Ltd. was established on November 29, 2019, and its business type is commercial and domestic software development. The Singapore government's open data website OPEN GOV SG shows that Binance Asia Services Pte. Ltd. was established on April 6, 2018, and its business type is management consulting services and other information service activities.

Regarding the series of supervision and law enforcement faced by Binance, Liu Changyong, director of the Blockchain Research Center of Chongqing Technology and Business University, analyzed to the reporter of Blockchain Daily that Binance's business system is centralized (such as exchanges) or semi-centralized (such as BSC), which is technically difficult to block, but institutionally it can be traced back to the responsible person, so it will face supervision from all parties.

"The development of blockchain technology has broken through the traditional financial rules framework based on sovereignty. Technically, users can use Binance's services anywhere, but the system violates the financial regulatory rules of many sovereign countries," said Liu Changyong.

Will Binance’s breakthrough work?

Under heavy regulatory pressure, Binance has intensively issued announcements and introduced measures in an attempt to break through.

Binance's first move was to reduce leverage and restrict withdrawals. On July 27, Binance announced that starting today, the maximum leverage of new users within 60 days of opening a contract account shall not exceed 20 times. This is a further adjustment after Binance implemented leverage restrictions for new contract users on July 19, 2021. Currently, Binance has significantly reduced leverage restrictions, reducing leverage positions from a maximum of 125 times to 20 times.

Starting from August, Binance will also reduce the daily withdrawal limit from 2 bitcoins to 0.06 bitcoins. Starting from August 10, all Australian dollar, euro and pound margin trading pairs will be delisted in batches. Previously, Binance had gradually withdrawn support for stock tokens since July 16.

In addition, on July 28, Binance also launched a tax filing tool API. The main purpose of the API is to help users track cryptocurrency trading activities, thereby ensuring that users from all countries can fulfill the tax filing requirements required by regulators.

"We understand that many regulators at the local level may have their own positions on crypto, and we welcome the opportunity to have a constructive dialogue on local requirements," Binance claimed on its official Twitter.

Faced with a series of regulatory turmoil around the world, Binance CEO Changpeng Zhao also publicly stated that "clear regulations are critical to continued growth." In the future, Binance will expand its international compliance team, expand compliance partnerships, and localize operations and businesses to comply with local regulations, demonstrating its strong willingness to comply.

Earlier in April, Binance appointed Brian Brooks, former acting director of the U.S. Office of the Comptroller of the Currency (OCC), as CEO of Binance U.S. This move was seen by the industry as a key step in Binance's global compliance journey.

"We hope to get licenses everywhere & work with regulators everywhere," Zhao Changpeng said on Twitter.

On July 26, it was revealed that Zhao Changpeng was looking for a new Binance CEO.

"I hope this CEO has a very strong regulatory background." Zhao Changpeng disclosed that he hopes to resign as CEO in the next two to five years and focus entirely on developing the BNB and Binance Smart Chain ecosystem. His "resignation" plan now seems to be more determined.

"Digital asset trading platforms are facing regulation or enforcement on a global scale, which indicates that countries are becoming increasingly strict in their regulatory attitude towards the digital asset industry." Yu Jianing, an expert at the Whale Platform Think Tank and the rotating chairman of the Blockchain Committee of the China Communications Industry Association, said in an interview with the Blockchain Daily reporter that compliance is a necessary prerequisite for the development of the blockchain industry. Some trading platforms that do not hold operating licenses or provide services indirectly without KYC may face great compliance challenges in the future.

He pointed out that from the perspective of the entire market development, global supervision will accelerate the compliance of trading platforms, and the increasingly stringent supervision by governments will correct the digital asset market and guide trading platforms back on track.