Binance opened its trading doors in 2017, experiencing exponential growth. Back then, KYC (Know Your Customer) procedures were non-existent at Binance, allowing anyone to swiftly open accounts, drawing tens of millions of users. However, among these were American customers, a demographic Binance couldn’t legally serve without proper registrations. Additionally, early on, there was a laxity in monitoring the flow of funds through the platform. This allowed users from sanctioned countries like Iran to leverage Binance, enabling money movement under the radar. The platform was also used to finance extremist groups such as Hamas, Al Qaeda, and ISIS.
Internal communications at Binance revealed that staff knew they shouldn’t serve American customers but actively sought ways to retain them, suggesting VPN use to conceal their location. Despite being aware of inadequate anti-money laundering measures, no corrective actions were taken to sustain the rapid expansion.
In recent years, facing increased regulatory scrutiny, CZ realized the need for Binance’s adaptation to ensure its sustainability. Teams specializing in compliance were onboarded, implementing stricter KYC and AML procedures, preparing Binance for forthcoming European MiCA regulations. While Binance has made strides, the settlement with US authorities marks a turning point, aligning the exchange with regulatory requirements.
As part of the settlement, Binance has agreed to a $4+ billion settlement and the departure of CEO CZ, who faces a $50 million fine and potential imprisonment for facilitating money laundering. CZ is barred from influencing Binance’s policies for three years, although his counsel may be sought for past decisions. Despite stepping down, CZ remains Binance’s largest shareholder.
For the next three years, Binance must report its compliance efforts directly to the US government, with the US Treasury Department having unfettered access to Binance’s data for oversight. The global Binance exchange must sever ties with the US, while Binance.US continues as an independent entity. Recent SEC complaints prompted a significant overhaul at Binance.US, resulting in the departure of a third of its staff.
However, the current settlement does not resolve the SEC’s complaints, which could surface later. Binance asserts that no customer funds were lost, distinguishing this from cases like FTX, involving customer fund fraud.
Enter Richard Teng
Richard Teng, formerly heading Regional Markets at Binance, steps in as the new CEO. With over three decades in financial services, including roles at Singapore and Abu Dhabi regulators, Teng is tasked with steering Binance’s collaboration with global regulators.
Despite the settlement, Binance’s customers show continued trust in the exchange, with only a $1 billion outflow from the $67 billion in customer assets managed by Binance. This minor shift indicates Binance’s probable continued dominance in the global cryptocurrency exchange sphere.
Binance has already left some European countries in the wake of regulatory crackdowns. However, once the MiCA regulation is fully established, Binance might resume operations, utilizing a single license from one country to passport this to other countries, so the whole of Europe can be served.
Spot Bitcoin ETF Prospects
The Binance settlement could increase the prospects of a spot Bitcoin ETF approval, considering regulators’ better insights into bitcoin’s price formation. Previously uncertain about Binance’s operations, the US now has access to monitor all Binance systems.
With most ETF applicants relying on Coinbase for surveillance, its position is expected to strengthen as Binance exits. Moreover, Binance’s settlement sets a precedent for exchanges to adhere to US laws, enhancing regulatory compliance. In a more regulated environment, institutional interest in bitcoin could grow.