Huobi was "banned" by Seychelles, but it was a false alarm, but the "crypto headquarters paradise" is no longer safe

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

On March 8, the Financial Services Authority of Seychelles (FSA) issued a warning on its website that IBC HUOBI GLOBAL LIMITED, a company registered in the country, is suspected of being associated with the virtual asset online trading platform "Huobi Global" and conducting business operations through the website: https://www.huobi.com.

The FSA informs the public that IBC does not hold any license issued by the FSA to carry out such activities. Therefore, the entity has never been regulated by the FSA. The FSA strongly advises investors and the public to be cautious about using any services provided by IBC or companies related to it.

However, whether in the Chinese or English legal statement of Huobi Global (HUOBI GLOBAL) (the last update was two years ago), the first clause is "The purpose of this website is to provide professional, safe and reliable digital asset trading and asset management services to the vast number of digital asset enthusiasts and users around the world as much as possible without violating the relevant laws and regulations of the Republic of Seychelles." It can be seen that Huobi Global is indeed under the legal jurisdiction of Seychelles.

The LinkedIn homepage of Huobi Global also shows that it is a Seychelles company.

Coincidentally, last year, Malta’s Financial Services Authority (MFSA) also issued a statement claiming that Binance, which claims to be a “Malta exchange”, is not regulated by the country. A few years ago, Binance and Malta had a very good relationship. In 2019, a website called “Malta Today” published an article titled “Why Binance, the world’s top exchange, is moving to Malta”.

Why are countries like Seychelles and Malta suddenly rejecting these top exchanges? In fact, this has already begun to emerge last year.

According to blockchain media Coindesk, in October 2020, the U.S. Commodity Futures Trading Commission (CFTC) and federal prosecutors charged BitMex, a virtual currency futures exchange registered in Seychelles. Alison Elizabeth, director of the "Regulatory Sandbox" at the Seychelles Financial Services Authority, claimed: "The Bitmex incident has had a huge impact on Seychelles, and supervision will definitely be tightened. Currently, the Seychelles Central Bank, the Financial Intelligence Unit and the Legal Team of the Financial Services Authority are jointly formulating the next policy."

Fanny, the director of the Financial Services Authority, claimed that from January 2021, all companies registered in Seychelles must comply with the Financial Action Task Force on Money Laundering (FATF) on KYC/AML and auditing requirements, and more financial bills will be implemented in March. He also said, "Seychelles is committed to attracting the best companies. If a company does not want to be regulated, it can move away." Fanny also added that if there are sufficient reasons at the regulatory level, a company's registration with the FSA can be cancelled.

However, Wu said that Huobi has communicated with the Seychelles authorities urgently, and the Seychelles warning about Huobi will be withdrawn. The above warning has been removed from the FSA website on March 10. Huobi said it should be a misunderstanding.

Although the Seychelles' warning about Huobi seems to be a false alarm, the actions of Malta and Seychelles will obviously have an impact on the current exchange industry. Huobi's most direct competitor Okex also shows that it is located in Seychelles on its LinkedIn page. Why do so many cryptocurrency exchanges choose Seychelles as their place of registration?

On the one hand, Seychelles has long been a tax haven. On the other hand, Seychelles has relatively loose regulations, and communication with local officials is relatively smooth and even casual, as can be seen from the FSA's rapid withdrawal of the warning about Huobi. In fact, Arthur Hayes, the founder of Bitmex, which is also registered in Seychelles, once joked: "In Seychelles, the cost of bribing officials is just a coconut." This joke eventually became a highlight of the U.S. government's lawsuit against BitMEX.

In recent years, as regulators in various countries have gradually responded, they have gradually strengthened supervision of various physical companies involved in cryptocurrencies. In December last year, Estonia, which was once very friendly to the cryptocurrency industry, revoked the licenses of more than 1,000 cryptocurrency companies in one fell swoop.

Since the crypto industry is a completely new field, when a country or region has looser regulation, it will attract a large number of crypto companies to register. The cryptocurrency industry often involves some illegal activities in its early days, which undoubtedly brings huge regulatory pressure to these countries that are more friendly to cryptocurrencies. It can be foreseen that in the future, even small countries will have stricter regulation on the cryptocurrency field. Companies such as Binance or Huobi may need to keep looking for the next country with looser regulation on cryptocurrencies to register.

There are huge risks in non-compliant exchanges. Take the previously closed btc-e exchange as an example. This exchange is the oldest exchange in the cryptocurrency field and was established at a similar time as Mtgox. In July 2017, the founder of the website, Alexander Vinnik, was arrested in Greece. Since btc-e has not implemented KYC/AML policies since its creation, users only need an email address to register, which has made it a haven for money laundering. The founder of the website faces multiple charges from multiple countries. The United States accuses him of money laundering, and Russia accuses him of fraud. Both countries want to extradite him, which puts Greece, which arrested him, in a dilemma.

On the one hand, Greece is a member of NATO, and on the other hand, Greece's natural gas is completely dependent on imports from Russia. In the end, without offending either side, Greece extradited Alexander Vinnik to France because France also accused him of fraud. Just last year, Alexander Vinnik was sentenced to five years in France, but the United States and Russia have not given up their extradition requests for him.

According to the Financial Times, BTC-e's holding shell company, Canton Business Corporation, is also registered in Seychelles. It takes time for a thick ice to form, which shows that regulatory pressure in Seychelles has always existed.

However, pure compliant exchanges such as Coinbase have many restrictions on the most profitable derivatives, coin listing and other service providers, so their ability to make money is far less than Binance and Huobi. Therefore, some people believe that the "non-compliant" market will always be the mainstream of the entire cryptocurrency circle, and the non-compliant market has many innovations and gameplay in sales and products . It can be foreseen that disputes similar to the Seychelles will continue to exist in the future in the selection of cryptocurrency compliance and non-compliance.

The other side of Coinbase: Compliance becomes a competitive disadvantage. Its ability to make money is far inferior to Binance and even worse than Huobi OK

Risk Warning

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