Binance, the world's largest and most popular cryptocurrency exchange network, has had a rough few days.
First, Japan's financial regulator, the Financial Services Agency (FSA), issued its second warning to Binance on Friday, 25 June, for operating in the country without permission (The first warning was issued in 2018).
That same day, Binance withdrew its services from Ontario, Canada after the Ontario Securities Commission (OSC) published a Notice of Hearing and Statement of Allegation against Bybit, another crypto trading platform that is based in Singapore, taking it as a sign for them to bail. The OSC has accused Bybit of noncompliance with province regulations.
Then on Saturday, 26 June, the UK's own financial regulator, the Financial Conduct Authority (FCA), ordered Binance to cease activities in the UK. The warning reads:
"Most firms advertising and selling investments in cryptoassets are not authorised by the FCA. This means that if you invest in certain cryptoassets you will not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.
While we don’t regulate cryptoassets like Bitcoin or Ether, we do regulate certain cryptoasset derivatives (such as futures contracts, contracts for difference and options), as well as those cryptoassets we would consider ‘securities’. [...] A firm must be authorised by us to advertise or sell these products in the UK."
Binance Markets Limited, Binance's unit in the UK, filed a registration with the FCA but withdrew its application in May due to not meeting anti-money laundering requirements.
According to the FCA's Financial Services Register page for Binance Markets Limited, Binance must put up a public notice on its website and apps stating to its UK users that Binance Market is banned from offering its service. The FCA also ordered Binance to "not promote or accept any new applications for lending by retail customers through the operation of its Electronic Lending System, and must cease marketing any reference to EddieUK/Binance/BinanceUK being an FCA regulated platform for buying and trading cryptocurrencies."
Binance troubles in the first half of 2021
In March, Bloomberg reported that the US Commodity Futures Trading Commission (CFTC) investigated Binance for whether the crypto trading platform, which isn't registered with the agency, allowed US citizens to buy and sell derivatives—something that the CFTC regulates. But as this report went out, Binance hasn't been charged with any wrongdoing. That said, Changpeng Zhao, CEO of Binance, took to Twitter to air his thoughts.
The following month, the Federal Financial Supervisory Authority—or BaFin, Germany's financial regulation—issued a warning to Binance for potentially violating a securities laws for putting on offer "stock tokens" without correct documentation. This means that Binance allegedly failed to issue a prospectus.
A prospectus is an official document that generally tells investors what a particular investment is about so they can make an informed decision. It has information on financial security to potential investors, the company offering the investment, and what the financial risks are that accompany an investment.
Offering stock tokens that track the movement of shares in (at that time) MicroStrategy, Tesla, and Coinbase represent securities that require a prospectus. These stocks are bought and sold using Binance's own cryptocurrency.
As the FCA issued a warning to British consumers about Binance Markets Limited, the financial regulator also offered words of wisdom to anyone interested in investing in cryptocurrency assets: Do your research.
It's very easy to get caught in the hype, and the loudest drones could be enough to drown out any more sensible voices. Doing your research, reading up more about the company you're going to be investing in and what you're investing on, and reading stories that show successes and failures in such investments could put one's head in better perspective to not make hasty decisions. Furthermore, make sure they are legally recognized to conduct business in your country, else no one will back you up if or when things go south—and sometimes they do pretty quickly.
"Check with Companies House to see if the firm is registered as a UK company and for directors’ names. To see if others have posted any concerns, search online for the firm’s name, directors’ names and the product you are considering," the FCA urges the British public, "Always be wary if you are contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true."