U.K. Bans Cryptocurrency Exchange Binance

Where is Binance.com domiciled?

The answer may be a lot more complicated than you think.

While a website has a domicile insofar as it resides on a server in some geographical location, the domicile of its legal entity is another thing altogether.

Yet that lack of clarity as to where Binance.com lives has done little to stop it from becoming the world’s largest cryptocurrency exchange by trading volume.

Which is why the recent move by the United Kingdom’s Financial Conduct Authority to get Binance.com to declare that it does not conduct any regulated activities in the U.K. is so strange – the ban by the FCA strictly speaking only affects Binance Markets Ltd., a U.K. entity.

Acquired in May 2020 and yet to launch any business in the U.K., Binance Markets Ltd. has been banned by the FCA from conducing any regulated business in the country, one of the most significant moves against the cryptocurrency industry in the United Kingdom.

Binance Markets Ltd. however is a separate legal entity from Binance.com which is allegedly based in Malta, but has no corporate headquarters anywhere.

According to Binance and adding to the confusion, the FCA notice restricts, but does not remove previous permissions owned by Binance Markets Ltd.

The FCA move did little to roil cryptocurrency markets however, with Bitcoin gaining around 5% in Asian trading.

Cryptocurrency bulls have long seen tough regulatory action as a sign that the industry is maturing and see a more robust safety net as potentially drawing in more investors.

Binance Markets Ltd. is an FCA-regulated entity, acquired by Binance last June, along with plans for the launch of Binance.UK.

And a closer inspection of the FCA move to ban Binance Markets Ltd. from conducting any regulated activity may have more to do with the fact that the U.K. arm of Binance hasn’t yet complied with all of the regulatory requirements to start its operations.

Regulators globally remain concerned that cryptocurrencies are used for money laundering or other nefarious activities and according to an FCA spokesperson,

“A significantly high number of cryptoasset businesses are not meeting the required standards under the money laundering regulations, which has resulted in an unprecedented number of businesses withdrawing their applications.”

Of the firms assessed by the FCA for applications to conduct regulated activities, over 90% have since withdrawn their applications.

The FCA is hardly alone in its censure of Binance, with Japan’s Financial Services Agency issuing a warning against Binance recently, saying it offered cryptocurrency services without registration.

The recent move by regulators against Binance is somewhat cynical.

Binance has operated without permission for years now, right under the noses of financial watchdogs who have conducted enforcement activities piecemeal, without clear definitions for what constitutes cryptocurrencies, let alone what would qualify as a regulated activity.

And now that Binance and other cryptocurrency exchanges are attempting to work within the auspices of a regulatory framework, authorities like the U.K.’s FCA and Japan’s FSA may push Binance to go the other way.

For years, many stakeholders had lobbied lawmakers for clear legislation to govern the cryptocurrency industry and had been largely ignored.

Now that the industry has grown too big to ignore, instead of providing clear regulatory frameworks with which participants can work within, regulators are trying to adapt existing regulations to issue blanket bans on an industry that has almost never asked for permission.

Considering that the American laws against alcohol during Prohibition provided fertile ground for the birth of organized crime, trigger-happy regulators may do the same when it comes to cryptocurrencies.

If authorities want to regulate cryptocurrencies, they would be better served by working with industry, instead of driving them to continue operating in the shadows.