Binance: basis for CFTC’s inquiry could be damning, says top lawyer

Rick Steves

Mr. Stankiewicz pointed to Binance’s mixed reputation in the industry especially with regards to its compliance efforts. According to Forbes, an internal whistleblower denounced the exchange’s practices of aiding US customers in circumventing its own internal controls, to help funnel these customers – and their associated revenues – to the main Binance exchange.

The Commodity Futures Trading Commission has opened an inquiry into Binance to investigate allegations that the venue, which is not registered with the CFTC, allowed US citizens to trade in cryptocurrency derivatives, according to a Bloomberg report.

Binance has not been formally accused of any wrongdoing and may not face enforcement action. “However, where there is smoke, there may be fire”, said Matt Stankiewicz, Managing Counsel at The Volkov Law Group, on the law firm’s blog.

Mr. Stankiewicz notices some parallels with the CFTC’s investigation of BitMEX, though it does not yet appear to rise to the same level as Binance tried to keep US citizens away from its derivatives trading platform.

Measures taken by Binance include segregating US customers and force them to a US-based platform, headquartered in San Francisco, which restricted certain coin offerings and financial instruments, such as derivatives and options trading.

The compliance team restricted access based on a user’s IP address, but simply restricting IP addresses is not enough. VPNs or the TOR browser are a few tools at the disposal of anyone who wishes to circumvent such controls.

“This inquiry, depending on the outcome, could begin to provide guidance on this compliance challenge associated with operating a virtual-based exchange”, said Mr. Stankiewicz.

Binance’s KYC program seems to be outdated as unverified users who have not undergone a KYC review are restricted to withdrawing no more than two Bitcoin per day. With Bitcoin hovering just over $57,000, this means unverified users can transfer over $110,000 per day off the exchange.

“These restrictions were very likely created at a time when Bitcoin’s price was much lower. At this point, a $110,000 daily withdrawal limit may not be quite as strong a barrier as it needs to be”, Mr. Stankiewicz continued.

“Many exchanges take a similar approach, that they can provide “limited” services prior to conducting a KYC review, though do so at their own risk. US-based exchanges, in particular, can be extremely susceptible to money laundering and sanctions risks with such a high threshold.

“The CFTC will now review Binance’s overall KYC program to determine whether the program is effective and that the platform is doing all it can to ensure US citizens are not trading on the unlicensed platform”, said the Managing Counsel at Volkov Law Group.

Mr. Stankiewicz pointed to Binance’s mixed reputation in the industry especially with regards to its compliance efforts. According to Forbes, an internal whistleblower denounced the exchange’s practices of aiding US customers in circumventing its own internal controls, to help funnel these customers – and their associated revenues – to the main Binance exchange.

“This information may form the basis of the CFTC’s inquiry and could certainly be damning for Binance”, he continued, adding that it is the CFTC that oversees much of the space despite the SEC getting most of the attention.

“Many cryptocurrencies, if not most, are considered commodities for regulatory purposes within the US, which falls under the ambit of the CFTC”.

Bitcoin and Ether, the two largest and most popular cryptocurrencies, are considered commodities and regulated as such by the CFTC. The lawsuit that opposes the SEC vs Ripple is precisely based on the matter of what is the XRP, a commodity or a security?

While the SEC claims XRP is a security and its sale should have been registered with the financial watchdog, Ripple responded that it never held an ICO. Wherever the case may take us, it is likely to establish a meaningful precedent.

Read this next

Digital Assets

Bybit exits UK market ahead of regulatory changes

Bybit is suspending its cryptocurrency services for users in the United Kingdom due to impending regulations from the country’s Financial Conduct Authority (FCA).

Digital Assets

Binance argues SEC trampled authority set by Congress

Binance, Binance.US, and Changpeng Zhao have jointly filed to dismiss a lawsuit brought by the Securities and Exchange Commission (SEC) in June.

Uncategorized

Oscar Asly replaces Rasha Gad as CEO of M4Markets Dubai

Seychelles-regulated brokerage firm M4Markets has secured a license from the Dubai Financial Services Authority (DFSA) after it has already incorporated its new subsidiary in the Dubai International Financial Center (DIFC).

Retail FX

Capital Index UK reports mitigated loss despite revenue drop

FCA-regulated brokerage firm Capital Index (UK) Limited has released its annual financial report for the year 2022.

Digital Assets

Mike Novogratz’s Galaxy Digital expands in Europe

Galaxy Digital, the New York-based cryptocurrency financial services company founded by Mike Novogratz, is expanding its presence in Europe by appointing Leon Marshall as its first European CEO.

Metaverse Gaming NFT

Turingum Partners with MarketAcross to Drive Web3 Adoption in Global and Japanese Markets

Global blockchain PR leader MarketAcross joins forces with Japanese Web3 specialist Turingum to mutually expand its market reach, aiming to fortify Turingum’s worldwide footprint and MarketAcross’s presence in the lucrative Japanese blockchain landscape.

Digital Assets

Binance to delist all stablecoins in Europe next year

During a public hearing with the European Banking Authority (EBA), an executive from Binance said that the exchange could ultimately delist stablecoins from its European platforms by June 30, 2024.

Industry News

“Unconscionable conduct”: ASIC fines National Australia Bank $2.1m for overcharging customers

NAB faces a $2.1 million penalty for unconscionable conduct, as the Federal Court rules the bank knowingly overcharged customers, and took over two years to rectify the situation.

<