Why Was Binance Banned in the U.K.?
by Emma Newbery | Updated Jan. 30, 2022 - First published on June 29, 2021
Binance clampdown may just be the start of increased U.K. regulation.
U.K. authorities have banned the widely-used international cryptocurrency exchange, Binance, from operating in the country.
In a recent statement, the Financial Conduct Authority (FCA) -- the U.K.'s financial regulator -- said: "Binance Markets Limited is not permitted to undertake any regulated activity in the U.K."
Binance will be required to display a clear warning to U.K. customers on its website. It is also banned from advertising its services in the U.K.
Binance Markets Limited is the U.K. subsidiary of Binance Group, which is registered in the Cayman Islands.
Right now, the FCA does not regulate cryptocurrency exchanges that operate in the U.K. As a result, a spokesperson from Binance Group said Brits would be able to continue to trade as normal. The company argues that the exchange's services would not be affected as the website is not based in the U.K.
However, deposits and withdrawals in British Pounds (GBP) are currently frozen on the site. This could be because the payment processors do come under the remit of the FCA, but the situation is not yet clear.
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Why the U.K. is clamping down on Binance
Binance is one of the largest cryptocurrency exchanges in the world. However, it has fallen afoul of regulators in several countries recently as it pushes the boundaries of the cryptocurrency services it offers.
Regulators in Japan warned this month that the company is not registered to operate there. And Binance has pulled out of Ontario, Canada, following regulatory actions against other exchanges.
Binance had formed its U.K. subsidiary as part of its efforts to become a registered cryptocurrency exchange in the country. The idea was to create something similar to Binance.US, a country-specific site that complies with local regulations. However, it withdrew its application earlier this year.
The FCA is concerned on several fronts:
- Lack of control over cryptocurrency trading. The FCA has issued several warnings that investors could "lose all their money" if they invest in cryptocurrency. It is concerned about the high levels of volatility and believes crypto exchanges are not transparent about the risks.
- Anti-money laundering (AML) regulations. U.K. crypto firms have until next month to register with the FCA and comply with AML requirements. The original January deadline had to be extended due to the high number of applications.
- Crypto derivatives. The FCA banned cryptocurrency derivatives trading (which is offered by Binance) at the start of this year. It is concerned that cryptocurrencies are highly volatile and that derivatives trading (which allows investors to borrow to leverage the amount they invest) is too risky for retail investors.
- Binance's recent stock tokens. In April, Binance released a new product called stock tokens, which are cryptocurrencies that are pegged to the value of certain stocks such as Apple or Microsoft. This blurs the lines between cryptocurrency tokens and company stocks and has raised regulatory questions in several countries.
What does this mean for cryptocurrencies worldwide?
Earlier this year, cryptocurrency prices fell dramatically on the news that China would clamp down on all crypto services in the country. Other countries, including the U.K. and the U.S., are considering how cryptocurrencies should be regulated.
Some cryptocurrency exchanges have played it safe and pride themselves on working within the regulatory framework. Others, like Binance, continue to take an act-first-and-ask-forgiveness-later approach.
Regulators want to give retail investors the same levels of protection they have when investing in stocks or opening a bank account. Governments want to protect their economies and currencies but are finding it hard to answer, "What is a cryptocurrency?"
Some cryptocurrencies are similar to stocks. Others are straightforward currencies. Others are branching out into lending and other forms of decentralized finance (DeFi). This presents quite a headache for authorities who want to avoid money laundering and scams.
Many countries are cautious about overregulating this burgeoning market. And a number are considering the benefits of launching their own govcoins, such as a digital dollar. These would incorporate the blockchain technology that underpins most digital currencies, but with the government support and lack of volatility we find in traditional currencies.
As one crypto CEO warned, we will undoubtedly see increased regulation in the coming months and years. This could help the cryptocurrency industry by removing some of the bad players and increasing consumer confidence. But as we've seen in China, it could also damage the whole industry.
RELATED: Want to learn more about Binance? Check out The Ascent's Binance.US review.
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