Banning Binance: the FCA Signals its Intent to Play a Bigger Role in Cryptocurrency Markets

The UK Financial Conduct Authority (“FCA”) has banned Binance Markets Limited (“Binance”) – part of one of the world’s biggest cryptocurrency exchanges – from carrying out any regulated activity in the UK. This not only demonstrates the FCA’s interventionist approach to the cryptocurrency markets, but is indicative of the stricter approach that regulators are adopting towards cryptocurrency markets globally.

The FCA’s decision

The FCA issued a notice on 26 June 2021 that Binance (the London based subsidiary of the wider Binance Group) is not permitted to undertake any regulated activity in the UK.¹ The FCA ordered Binance to display a notice on its website to this effect and ordered the company to take down any advertising and financial promotions. Further, the FCA required Binance to show that it has stored records of all of its UK customers, ready to be handed over to the FCA if necessary. The notice was coupled with a warning to consumers on investing in cryptoassets generally, reminding them to be wary of advertisements promising high returns on investments in cryptoassets or cryptoasset-related products.²

Understanding the decision

The reasons for the FCA’s decision to ban Binance have not been publicised. However, it is widely assumed that concerns over potential money laundering and a lack of consumer protection lie at the heart of it. Support for this view can be found in the FCA’s Business Plan for 2020/21 which states that the FCA will “strengthen [its] rules to prevent money laundering, as well as working with domestic and international stakeholders to support a joined-up approach to cryptoassets”.³

Another possible reason for the FCA’s decision is that the FCA is seeking to wave a cautionary red flag for consumers, who may not fully appreciate the risks posed by cryptocurrencies (and hence the consumer warning that accompanied the Binance notice). A recent FCA consumer research report on cryptoassets found that cryptocurrency ownership in the UK has increased by around 21 percent in the last year, however, the level of understanding of cryptocurrencies is declining.⁴

The consequences

Leaving aside the direct impact that the FCA’s decision may or may not have on the operations of the Binance Group, the ripple effect of the FCA’s intervention should not be underestimated, with other regulators across the globe setting their cross hairs on the Binance Group and crypto markets generally.

This is a signal from the FCA that it not only has concerns with cryptocurrency markets, but that it will take action to address those concerns.

The FCA’s strict approach to Binance should be viewed in the context of ensuring that new forms of digital money are safe. The Bank of England published a discussion paper on 7 June 2021 titled “New forms of digital money”, stressing that, amongst other benefits, new forms of digital money could “contribute to faster, cheaper and more efficient payments”, but that (i) the public need to have confidence in them, and (ii) “these opportunities can only be realised if new forms of digital money are safe” and are perceived to be so.⁵

To achieve these goals, the FCA requires cryptoasset companies and exchanges to register with it. The FCA is plainly concerned about money laundering issues and associated wrongdoing arising in decentralised markets; registration ensures that the FCA can exert a degree of control over compliance. However, only six crypto firms have, to date, had their registration approved by the FCA, with many more having withdrawn their applications. Given the slow progress the FCA has made approving registrations, expect further interventions from the FCA as it continues to make its mark in the crypto markets and above all ensure the safety and protection of market users. It is clear that cryptoasset companies will need rigorous controls and expert guidance if they wish to operate in the UK.

Footnotes

1. https://www.fca.org.uk/news/news-stories/consumer-warning-binance-markets-limited-and-binance-group
2. https://www.fca.org.uk/news/news-stories/consumer-warning-binance-markets-limited-and-binance-group
3. https://www.fca.org.uk/publication/business-plans/business-plan-2020-21.pdf
4. https://www.fca.org.uk/publications/research/research-note-cryptoasset-consumer-research-2021
5. https://www.bankofengland.co.uk/paper/2021/new-forms-of-digital-money