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    Basil S.

    What’s the Controversy Surrounding Binance Is All About, Anyway?

    Binance Watchdogs

    The world’s largest cryptocurrency exchange Binance has been a magnet for regulatory scrutiny for quite a while now — and for a good reason. Over the last several years, the firm has been repeatedly accused of evading all kinds of regulations in various jurisdictions, including the United States, Germany, and the UK.

    And yet, despite the fact that the company’s business practices gather so much unwanted attention from financial watchdogs in different parts of the globe, it still somehow manages to dominate the market, completely overshadowing its competitors in terms of trading volume.  

    So what’s the deal with all the scrutiny surrounding Binance — and how does the company expect to stand up against it? Here’s what you need to know. 

    A Quick Rundown

    Binance was founded in 2017 by Changpeng Zhao, a Chinese-Canadian entrepreneur and computer science major who had been involved in the development of cryptocurrency exchange service blockchain.info prior to starting his own company. Currently the biggest cryptocurrency exchange in the world, Binance offers its users trading in over 500 cryptocurrencies as well as various other services, including listing and fundraising of tokens.

    The company’s own cryptocurrency, Binance Coin, is the fourth-largest coin in the world by market cap. As of August 26, the company’s daily trading volume is over $27 billion. 

    Initially based in China, the company later had to move its headquarters elsewhere due to the country’s increasingly restrictive regulation policy towards crypto. The current domicile of Binance is unclear: although its holding company had been reported to be registered in the Cayman Islands, the company’s spokesperson declines to comment on its direct location, stating that Binance’s corporate structure is "decentralized". And it’s statements like that which basically scream for attention from regulators. 

    Where Does the Company’s Bad Rep With Regulators Come From?

    Being opaque about the company’s business domicile is already more than enough of a reason to cause concern among financial watchdogs; however, in the case of Binance, the list of questionable business practices certainly does not end at that.  

    The company has become notorious for evading various regulatory compliance rules in multiple jurisdictions, so there was no surprise when the same jurisdictions started to turn their backs on Binance in return. Japan was one of the first ones to do that: in 2018, the country’s financial watchdog FSA warned Binance of its non-compliance status; the agency issued repeated its warning in 2021, going as far as to state that the exchange could potentially be charged with a criminal offense for operating in the country without permission.  

    In March, German regulator BaFin issued a similar statement, warning its investors that the exchange has violated securities rules and pointing to lack of correct documentation (namely a properly issued prospectus). Just like Japan’s FSA, BaFin noted that the violation committed by Binance represents a criminal offense.  

    Around the same time, the US Commodity Futures Trading Commission started to investigate the activities of the firm in the United States over concerns that Binance allowed Americans to place wagers that violated U.S. rules. In May, the US Justice Department and IRS made clear that they were also investigating the company. As the news that FTC was looking into the firm’s activities went public, Singapore and Thailand have also jumped the bandwagon, announcing that they would conduct their own investigations. 

    The controversy surrounding Binance reached its peak in June when artificial intelligence company Fetch.ai stated that $2.6 Million worth of assets were wrongfully stolen and traded from its Binance account by an unidentified hacker. Two months later, the exchange was ordered by the London High Court to identify the perpetrators of the hack and freeze their accounts. 

    The news about the hack has arguably led to the worst PR disaster in the history of Binance: after all, the legendary “Funds are safe” meme had been coined by none other than the company’s CEO himself. It’s just that this phrase has a different connotation now.

    Steps to Recovery

    To improve its relationships with regulators, Binance has decided to scale back its product offerings in some of the countries that are currently looking into the firm’s activities. The company is also actively working towards fixing its issues with compliance. According to Zhao:  

    “(Binance’s) general strategy all over the world is to continue to hire ex-regulators, very senior people to augment our team, and we’ll continue to grow the compliance team very aggressively.”

    So what does the future hold for the largest crypto exchange in the world? Frankly, we don’t know. One thing is for sure: regardless of how things turn out, funds must remain safe. At all costs.

    The content of this article is for informational purposes only and should not be construed as investment advice. We ask you to do your research.