For most the Binance saga with U.S. regulator the SEC (Securities and Commodities Exchange) has come to an end. The end while better than FTX’s demise is still a big question mark and there are more queries than answers. Will Binance eventually be fully regulated as a crypto exchange in the UAE and if not what will happen to Binance globally after CZ Changpeng Zhao its founder has stepped down.
The Context of Binance after Settling with U.S. regulator
The settlement while huge can be paid by six year old Binance which has 150 million users worldwide. Binance will pay $4.3 billion which is considered one of the largest corporate agreements in U.S. history, HSBC in 2012 agreed to pay $1.9 billion for its role in facilitating drug cartels’ money laundering. Goldman Sachs coughed up $2.9 billion in 2020 over charges it had bribed Malaysian government officials.
Personally, Binance Founder and CEO will pay a $50 million fine and step down as CEO. Zhao pleaded guilty to violating Bank Secrecy Act in federal court in Seattle. The deal, which includes the Justice Department, Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the exchange.
In the court proceedings, Binance admitted that it allowed transactions with Hamas and other terrorist groups on the platform, and was charged with three counts, including anti-money laundering, operating an unlicensed money transmitting business and violating US sanctions. Binance is paying a criminal fine of $1.8 billion and forfeiting $2.5 billion, according to court filings.
While CZ could face 10 years in prison it is expected he will not serve more than 18 months as per the plea deal.
Another consequence of the deal is that Binance.com will not be able to continue in the United States, yet Binance.US a subsidiary created in 2019 a regulated platform will continue. It is known that 25% of Binance clients were from the United States.
Finally Richard Teng, the former MENA regional head of Binance will replace CZ as CEO. CZ himself announced this on X stating, “Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself. Binance is no longer a baby. It is time for me to let it walk and run. I know Binance will continue to grow and excel with the deep bench it has. I’m pleased to announce that Richard Teng, our now former Global Head of Regional Markets, has been named the new CEO of Binance. Richard is a highly qualified leader and, with over three decades of financial services and regulatory experience, he will navigate the company through its next period of growth. He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth.”
Binance Saga with U.S. and global regulators
Over the past year, Binance has had a tough time with global regulators. This has led to Binance leaving the Netherlands, Cyprus, UK, Belgium, Austria, France and Germany.
In addition Binance lost its key European banking partner, PaySafe Solutions. This loss of a banking partner further complicated Binance’s operations in Europe.
In Europe the only countries where Binance is legally able to operate are Italy, Lithuania, Spain, Poland and Sweden. Noteworthy, is that once MICA regulations are applied in Europe, Binance will only need to be regulated in one European country in order for it to serve the entire 27 countries forming the European Union.
Binance is also regulated in Japan, and in Bahrain.
In terms of licensing in Hong Kong, It has been stated that Binance set up a separate crypto exchange in Hong Kong named HKVAEX to pursue a license in the city, the South China Morning Post reported that the crypto exchange HKVAEX operates separately with its own executives, the two companies share resources, sources told the Post, however Binance noted HKVAEX is not in the Binance Group of companies.
In Australia Binance for example had to shut down its local derivatives exchanges, while Brazilian authorities have raised eyes over the same concerns with Binance.
However Binance did receive a license in El Salvador. Binance received both a Bitcoin Services Provider License by the central bank and the first non-provisional Digital Assets Services Provider license (DASP), by the National Commission of Digital Assets (Comisión Nacional de Activos Digitales).
Binance in the UAE
While Binance and its former CEO have always spoken highly of the UAE and praised it for its clear crypto regulations and friendly approach to crypto business with CZ buying the only home he owns in Dubai, the crypto exchange has yet to receive a full license in the UAE for crypto trading.
For example in Abu Dhabi under the ADGM (Abu Dhabi Global Markets) regime Binance only received a crypto custody license.
As per ADGM website, “Binance received a Financial Services Permission (FSP) from the Financial Services Regulatory Authority (FSRA) in the Abu Dhabi Global Market (ADGM). Once the FSP conditions are fulfilled, Binance will be permitted to offer custodial services to professional clients in and from the ADGM.” Binance (AD) Limited is not permitted to deal with Retail Clients
Yet other companies within the ADGM regime have received crypto exchange licenses. M2, owned by Phoenix Group was licensed in ADGM in July 2023. Its license allows it to operate a Multilateral Trading entity.
Another licensed crypto exchange in ADGM is RAIN in ADGM which has a license to deal in Investments as Agent and provide custody services. Then there is Venomex which has a multilateral trading facility and custodian license. Glomax is also another regulated exchange, MidChains, Matrix, VenomX all have multi trading licenses in ADGM.
Even in Dubai under the VARA (virtual asset regulatory authority) Binance has still not received a full license and it is still operating under an MVP operational license that can only serve institutional and qualified investors and not retail.
Yet in VARA, five companies have received crypto exchange or crypto broker licenses including names such as GC Exchange, Fuze, BackPack exchange, Toko, and Laser Digital.
It will be interesting to see whether or not the recent court deal with CZ and Binance will help to push Binance licenses in the UAE or pull back those licenses, especially given the increased scrutiny by UAE Central Bank on AML and KYC guidelines, as well as the push against unlicensed VASPs by Dubai’s VARA.
Despite the fact that Richard Teng headed Binance MENA and before that its regulatory division and despite the fact that Mr. Teng served as CEO of the Financial Services Regulatory Authority of ADGM as well as chief regulatory officer of the Singapore Exchange, he was not able to push Binance’s license quickly in the UAE.
The Future of Binance
In terms of the future of Binance, Teng is reassuring stating that his strategy for navigating Binance is based on reassuring users that they can remain confident in the financial strength, security and safety of the company as well as collaborating with regulators and work with partners to drive growth and adoption of Web3.
Teng adds, “With CZ, and our leadership team’s support, I have accepted this role so that we can continue to meet and exceed the expectations of stakeholders while achieving our core mission, the freedom of money. The foundation on which Binance stands today is stronger than ever.”
Teng also reiterated that the fundamentals of their business are very strong with robust revenues and profits.
In much the same terms CZ in his statement on X also made reassurances, stating,” I am proud to point out that in our resolutions with the U.S. agencies they do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation. Funds are SAFU!”
Yet rumors are circulating among the crypto community that Binance might be bought by UAE based M2 crypto exchange, which the famous investor Kevin O’Leary has dubbed as his top choice. O’Leary in an interview with Benzinga stated, “Abu Dhabi is the capital of capital, and I think something big is about to happen there. I am leaving soon for the launch of M2, and I think it will take up huge capital. I don’t know if you have a bigger exchange emerging that’s completely compliant.” Coincidently, M2 is launching on November 28th 2023.
He adds, “However, so much is happening in the UAE, Qatar, and Saudi Arabia. If you’re a global investor like me, don’t ignore that. You put in an allocation.”
Furthermore Binance is not entirely out of the woods. According to Robert Le, a crypto analyst from the firm Pitchbook, “The ongoing civil lawsuit with the SEC remains a concern for the exchange, which (is) likely to result in further fines.”
So far investors had pulled out $1.7 billion according to data from Nansen analytics platform, yet the outflows were small relative to the more than $65bn of assets that remain on Binance, Nansen added.
Others believe it could be bought by a huge banking entity wanting to enter the crypto space. Some have speculated that Black Rock a huge financial institution was involved in the events around Binance. Those who think that Black Rock was involved believe that their discussions on Bitcoin ETF might have played a role in the events surrounding Binance and CZ who see Wallstreet taking over the market.
Yet some believe that in the long term, it is decentralized exchanges and DeFi that will ultimately replace toughly regulated centralized crypto exchanges. This is further supported by comments made by CZ himself on X where he says, “My current thinking is I will probably do some passive investing, being a minority token/shareholder in startups in areas of blockchain/Web3/DeFi, AI and biotech. I am happy that I will finally have more time to spend looking at DeFi.”
As Anton Golub, Founder and President of SwissAssetDao explained in an online session on Binance, “Before Binance was the biggest crypto exchange in the world, there was OKcoin, MT.Gox and Bittrex and there will be more and bigger ones in the future for sure. While not clear now who that could be, if I were to make a bet, I would pick one in DeFi.”