Binance: When Compliance Takes on Crypto
Binance is a cryptocurrency exchange founded in 2017 by Changpeng Zhao (commonly known as “CZ”). The company expanded at a fast pace, but not without a cost: the one of financial crime compliance.
According to Bloomberg, the platform is currently under investigation by the US Securities and Exchange Commission (SEC) for financial market manipulation. Market manipulation is “when someone artificially affects the supply or demand for a security”, meaning that Binance would have purposefully influenced the markets for its own benefit.
Binance starts to be well-known for its regulatory issues. In the United Kingdom, the platform was banned by the Financial Conduct Authority (FCA) in June 2021. Not long after, the Italian regulator (Commissione Nazionale per le Societa e la Borsa) stated that the company was operating in the country without a license. Then, Singapore and the province of Ontario followed the lead and prohibited the platform as well. Others, like Germany and Japan, have put a warning on the platform prior to enforcing further restrictions, such as a ban like others have done.
As a consequence, Binance started to reinforce its financial crime framework. First of all, by implementing stronger KYC (Know Your Customer) measures, which lead to a 3 percent loss of its customers. Second of all, CZ went on a campaign himself to address the issues highlighted by this series of bans. He started to organize meetings with officials and to put himself under the spotlight by giving interviews to mainstream medias. Yet, an increased in trading volumes could be noticed as it went from $454 billion in July to $789 billion in September (according to CryptoCompare, data gathered for Reuters). Trading volumes should have decreased at that time due to the implementation of new rules, nonetheless it was mitigated by the price of Bitcoin, as it increased in July and August. One may ask: was it luck or another market manipulation? Indeed, the market was stable for months and started to fluctuate again at this particular time, increasing as a consequence trading volumes for Binance despite losing customers.
While externally he distracts the audience from the issues his company is facing, internally investigations are going on. The SEC is not the only one coming after Binance. Indeed, the US Department of Justice has put it under investigation for money laundering and tax evasion. On one side, will the new compliance measures be enough to overcome US authorities? It is unsure, as the implementation of a strong financial crime culture and framework might come too late. Only the outcome of the US investigation will tell. On the other side, it already highlights that virtual currencies are facing more regulations worldwide despite the lack of legislations. Though the impact cannot be fully measured at this stage, compliance is taking more and more space in the world of crypto. A decentralized and unregulated market still has to comply with financial crime, even if their customer base has to suffer from it.
