Company’s UK affiliate ‘failed to’ respond to basic questions, says British regulator

1. UK’s FCA says it is ‘not capable’ of
supervising crypto exchange Binance
Company’s UK affiliate ‘failed to’ respond to basic questions,
says British regulator
Financial Times
August 25 2021
Binance has no formal headquarters and uses affiliates in different jurisdictions to access the
conventional financial banking system
One of the world’s leading financial regulators has said it is “not capable” of
properly supervising Binance despite the “significant risk” posed by the
cryptocurrency exchange’s products, which allow consumers to take
supercharged bets.

2. Binance is among the largest global crypto exchanges, facilitating hundreds of
billions of dollars of transactions each month.
But the Financial Conduct Authority said that Binance’s UK affiliate had “failed
to” respond to some of its basic queries, making it impossible to oversee the
sprawling group, which has no fixed headquarters and offers services around
the world.
The admission underscores the scale of the challenge facing authorities in
tackling potential risks to consumers buying frequently unregulated products
through nimble cryptocurrency businesses, which can often circumvent
national bans by giving users access to facilities based overseas.
The FCA censured Binance two months ago, saying that the company was
unauthorised to offer conventional financial services or offer a crypto exchange
within the UK. Regulators in other major financial hubs have also expressed
concern about Binance but the company has continued to offer crypto trading
to consumers around the world.
The UK regulator said on Wednesday that Binance’s “complex and high-risk
financial products” posed “a significant risk to consumers”.
It added that one of Binance’s London-based affiliates, which is registered with
the watchdog as an investment company, had supplied insufficient information
on the wider group’s products offered in the UK, as well as other business

3. details. That meant that Cayman Islands-incorporated Binance “was not
capable of being effectively supervised”, it said.
Binance said it continued to “engage with the FCA to resolve any outstanding
issues that may exist”. It added that it had complied with a series of
requirements that the FCA put in place in June, including the posting of notices
to its website.
The FCA kicked off a string of warnings by regulators across the world against
the crypto exchange. However, UK consumers can still trade derivatives and
other regulated products on Binance.com. The exchange has no formal
headquarters and uses affiliates in different jurisdictions to access the
conventional financial banking system.
Changpeng Zhao, its chief executive, has vowed to ramp up compliance, while
financial watchdogs question the rigour of its policies to prevent money
laundering and the financing of terrorism on its platform.
Binance had been building a separate, ringfenced UK exchange through an FCA-
regulated unit called Binance Markets Limited that would have provided
trading in cryptocurrencies against the pound and euro, according to former
employees. It had applied to become a registered UK crypto company, but
pulled that application in May.

4. The FCA said it had taken issue with Binance’s answers to queries that it raised
this year. “The FCA considers that the firm’s responses to some questions
amounted to a refusal to supply information, and that the firm has failed to
respond adequately to the FCA’s information requirements,” it said.
It also said that Binance had declined to provide even basic information, such
as “trading names and functions for all group entities globally”.
The exchange has indicated to the FCA that its UK operations are separate from
other parts of the global group. But internal Binance documents seen by the
Financial Times say that “Binance is operating an FCA regulated business” and
notes that “consumers will be subject to the FCA regulatory guidelines”.
Binance said: “The information provided to the FCA is correct and we continue
to have good faith discussions with the UK regulator.”
The FCA notice also said that Binance’s UK arm did not have any approved
senior executives, although it had submitted applications for executive
director, compliance oversight and anti-money laundering officer roles.
The group earlier this month said that it had hired former US Internal Revenue
Service special agent Greg Monahan as its global anti-money laundering
reporting officer. It has also recently brought in former eToro executive
Jonathan Farnell as director of compliance.

5. Zhao said last month Binance was “hiring a very big team of people with a very
strong compliance background”.