Yahoo Finance Why the UK banned Binance and what it means for your crypto assets?
Britain’s financial watchdog has issued a warning to consumers that one of the world’s largest bitcoin (BTC-USD) exchanges is not permitted to undertake regulated activities in the UK.
Over the weekend the Financial Conduct Authority (FCA) ordered Binance Markets to remove all advertising and financial promotions by 30 June.
The company is required to make clear on its website, social media platforms, and all other communications that it is no longer permitted to operate in the UK, and must not carry out any regulated activities in Britain without prior consent.
“Binance Markets Limited is not permitted to undertake any regulated activity in the UK,” the FCA said, adding, “no other entity in the Binance Group holds any form of UK authorisation, registration or licence to conduct regulated activity in the UK”.
The Cayman Islands-registered firm exchange has until Wednesday evening to confirm it has complied with the watchdog’s demands.
Here are some reasons why the FCA has intervened:
Need for regulation
The FCA’s move ensures that anyone wanting to provide cryptocurrency investment products in the UK, must do so in a secure and regulated environment, following in the footsteps of other major regulators in the US and in Asia.
Since the start of this year, crypto-related firms must register with the FCA before doing business in the UK, and comply with anti-money laundering regulations. However, most firms have been granted “temporary registration” until July.
Although this is one of the most basic building blocks of regulation for financial services firms, earlier this month the watchdog said that just five firms had registered, and that the majority were not yet compliant.
A spokesman for the FCA said: “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. The action taken on Binance Markets Limited has been in train for some time.”
Read more: Bitcoin rises as UK financial watchdog bans Binance cryptocurrency exchange
It comes just days after the Japanese financial regulator issued a consumer warning against Binance. It was the second time the country’s Financial Services Agency (FSA) warned about Binance after publishing an identical notice in 2018.
US and German regulators have also raised concerns over the firm’s activities in the past.
“Cryptocurrency is a victim of its own success because regulators across the globe are increasingly turning their beady eyes on cryptoassets, and companies like Binance that offer crypto services to consumers,” Laith Khalaf, financial analyst at AJ Bell, said.
He added: “This isn’t a step change in regulation which is going to knock the crypto craze on the head, but it is part of a growing trend of regulatory intervention in crypto markets.
“The idea that policy makers are simply going to allow a decentralised shadow payments system to emerge without any regulatory oversight is fantastical, and if the use of cryptoassets becomes more widespread, we can expect beefed-up regulation to follow suit.”
Watch: What is bitcoin?
Rising rush for crypto
Bitcoin and cryptocurrency prices have surged since last year thanks to increased institutional adoption.
There has also been a vast increase in the number of retail investors over the last year, as we have seen from the rise of so-called meme stocks such as AMC (AMC) and Gamestop (GME). The cryptocurrency market has faced similar retail investor-led growth.
Research published by the FCA last week estimates that 2.3 million adults now hold cryptoassets in the UK, up from 1.9 million last year.
Binance alone recorded crypto trading volumes equivalent to $1.5tn last month, according to data from TheBlockCrypto.
Fraud
Regulators have been cracking down on the industry of late amid concerns of illicit activities and consumer protection.
They are concerned about the potential for consumer harm in the cryptocurrency market, both through fraudulent activity and from losses sustained from crypto trading.
Some 14% of people have borrowed money to fund their investment, leaving them at high risk of suffering losses and being saddled with a debt hangover.
Read more: Cryptocurrency crimes hit 8,000 a year as scammers flock to the market
It comes as the number of money laundering and fraud cases continues to rise globally. According to a report from Action Fraud, an estimated £113m was lost to cryptocurrency fraud in 2020.
It received 7,014 complaints in the year to March 2021 compared with 3,608 in the previous 12 months. In just four years, reports of such crimes have gone up by 1,150%.
Bitcoin has the most crime reports of any currency, totalling 23,492 reports since 2016, which the report said “can be expected” as it is the most dominant crypto in the market.
The most common types of fraud include crypto scam initial coin offerings (ICO): scammers lure investors with an ICO for a fabricated cryptocurrency, often taking information from legitimate coin sites to appear more convincing.
As new currencies enter the market often, this can seem like an attractive investment to ‘get in quick’, only to find it was all fake.
Another type of fraud is called "crypto pump and dump schemes" where a small group of investors will pump money into a low value coin and convince private investors to follow suit so the group can sell their shares for a profit.
Read more: Dogecoin plunges on China action, bitcoin slides
What does this mean for your crypto assets?
Although the FCA has restricted Binance from offering services in the UK, Brits can still access Binance’s services in other jurisdictions to speculate on the price of cryptocurrency going up or down.
Binance said it takes “a collaborative approach in working with regulators and we take our compliance obligations very seriously”.
It added: “The FCA notice has no direct impact on the services provided on Binance.com. Our relationship with our users has not changed.
“We are actively keeping abreast of changing policies, rules and laws in this new space.”
Watch: What are the risks of investing in cryptocurrency?
