I thought it was worth clarifying exactly what has happened here, since neither the BBC nor the FT articles make it particularly clear.
The entity that the FCA has acted against is Binance Markets Limited (BML) which the parent Binance Group acquired earlier this year, in part because of its existing registration with the FCA which allowed it to carry out a limited range of regulated activities in the UK.
The FCA has now placed restrictions on BML which remove its ability to carry out those regulated activities -- however BML was not actually doing any business in the UK so the effect of this is limited.
The FCA also issued a consumer warning which, among other other things, reiterated that no entities in Binance Group are registered with the FCA and therefore cannot carry out regulated activity in the UK. Again, the impact of this is limited since the entity that you interact with when using the Binance.com website is not based in the UK, and the FCA does not have jurisdiction over it.
A possibly outcome is that Binance will be a bit more circumspect about offering derivatives trading to UK retail because they want to build a more substantial UK business in the future. We saw this with Bybit a while ago, where they do not allow UK retail to use their website (although they have an exception for sophisticated investors, who can self-certify as an eligible counterparty and continue to trade on Bybit). I wouldn't be surprised to see this.
> Again, the impact of this is limited since the entity that you interact with when using the Binance.com website is not based in the UK, and the FCA does not have jurisdiction over it.
Why would you say that? Providing services to any British citizen over the internet will fall squarely within the regulatory domain of the UK, regardless of the website used to connect, the physical location of the server or the jurisdiction of the company.
The FCA has no enforceable jurisdiction over Binance, because Binance's physical and financial assets are not in the U.K. - except they do have an office that could be seized, 3 Beeston Pl, London. It might be no more than a token office though.
They seem to have a number of offices in places, one per country. The US one is in Fresno, CA.
Their headquarters is in Malta.
They sell derivatives, and they are headquartered in Malta. Who actually uses good or services from these people?
> LONDON, June 28 (Reuters Breakingviews) - Regulators have gotten their heads around crypto assets. The next challenge is getting their hands on the companies. Britain’s Financial Conduct Authority on Saturday said that Binance Markets, the local arm of the world’s largest crypto exchange, was “not permitted to undertake any regulated activity in the UK”. Shortly after, the company said on Twitter that the notice has “no direct impact on the services offered on Binance.com”.
> How can that be? In general, the FCA can only regulate companies that are either based in Britain or that actively promote products there. A bitcoin trading platform registered elsewhere doesn’t necessarily count: according to Forbes Binance is based in the Cayman Islands. Founder Changpeng Zhao sought regulatory approval for Binance Markets, but its main services are unregulated and offered instead by the parent group. It’s not clear what he did to irk the FCA, or whether his customers will care. What’s obvious, though, is that the watchdog lacks powers to police a fast-growing part of the financial sector. (By Liam Proud)
>The FCA also issued a consumer warning which, among other other things, reiterated that no entities in Binance Group are registered with the FCA and therefore cannot carry out regulated activity in the UK.
The "impact" of this is that the regulators are beginning to take actions against the wild-west of the crypto world, regardless of how toothless each individual action is.
Put aside your opinions of cryptocurrencies as a technology...there's no way sovereign governments were going to let this fly. There fireworks are just starting.
Are you saying that crypto world wasn't regulated thus far? You realize that's not the case right? SEC and CFTC rules still apply and they have sued companies/people in the crypto space already. These companies and people also have to comply with IRS laws around taxation. Pretty much all of them have stringent KYC/AML verification systems.
Indeed. There was a great article in the FT on this looming battle recently:
> Human society, the historian Niall Ferguson says, oscillates between the dynamic of a metaphorical “tower” and the “square”. Sometimes institutions or leaders control social groups in hierarchical ways, just as church towers overshadowed medieval European cities.
> At other times, horizontal networks shape events, operating like crowds in ancient city squares. The “square” used to work best in small, face-to-face groups, but digitisation now enables peer-to-peer systems to operate on a massive scale.
> Now, however, a “tower” dynamic is entering the frame. On Wednesday, the Bank for International Settlements (the central bankers’ bank that, in a delicious irony, occupies an actual black tower in Basel) issued a striking report that lashed out at the “square”.
I'm not sure what they realistically do. They regulate banks but at least banks have deep enough pockets to pay the fines. What do you do when 18 and 21 year old brothers get hacked and lose $100M+?
Well, you say, they wouldn't get registered because they wouldn't have what they would need to provide a fair risk to customers. Then what? People will simply run the exchanges elsewhere and the money will keep getting "lost", "stolen" or seized by the authorities.
Citizens need to push back more if they want to keep any rights. UK citizens have a poor track record of this, gladly giving up most of their guns and having nothing to say about the absurd anti-knife campaign and fining people for nazi jokes, but they did start having some large-scale protests at the prospect of further lockdowns so maybe they're starting to grow some spine.
Most players in crypto space including exchanges want regulation. It wil legitimize the space and that will in turn allow more institutional money to flow in.
> While the FCA does not regulate crypto-currencies, it does regulate cryptoassets. Firms must be authorised [...]to advertise or sell such products in the UK.
> This means that people in the UK are not allowed to use Binance's services to speculate, or bet
> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
So, all is well, just don't bet, speculate. Just buy and sell?
The distinction here is between buying and selling Bitcoin, and buying and selling contracts for difference or spread betting on Bitcoin’s price movements. The latter is more tightly regulated, as it can result in much larger gains or losses, including losses greater than the staked amount.
Spreadbetting is tax-free in the UK and the FCA banned spreadbetting on bitcoin last year. IG, CMC and CityIndex all closed out client positions and delisted all crypto pairs.
"including losses greater than the staked amount" I don't think this is true. Binance will happily liquidate you well in advance of a possible negative balance.
The crux really is the FCA raising a red flag so people who wouldn't normally think will maybe think before buying into the latest `invest in crypto` advert that have become widespread and the latest FOTM(flavour of the month).
The other aspect for the FCA doing this, will be to curtail calls etc by those who get burned and go running to the FCA who can point out they told you so and it is nothing they can do as not under their remit.
But yes, binance operates outside the UK (Cayman islands - which for me is always a red flag for anything finance), so the net effect upon operation will be zero. However, marketing wise - the foundations have been laid.
One upshot of all this I hope is that web adverts (including youtube etc) may have to filter out these crypto investment ones and see UK residence not see any of them. Least that is my dream hope from this.
Binance offers a variety of derivatives, synthetics and even user created tokens. The cynical take is that crypto threatens the City of London's monopoly on products like these.
The more rational take is that the FCA is acting to protect UK citizens from potentially dangerous financial products from an unauthorized organisation.
This is transparent nonsense because there is absolutely no overlap between the medium or large-sized business that wants to buy derivatives from JP Morgan and the retail investors who want to buy bitcoin.
Are Rolls Royce (turbine manufacturer and part-time hedge fund) about to start buying forex derivatives from Binance? Seriously, seriously doubt it.
You can still buy them and sell them. What you can't do is use leverage to bet on changes in the price as, for example, you can on
https://www.plus500.co.uk/
Or any other number of Forex sites. These sites usually come with a warning that most users lose money. That you can lose more money than you have staked is the issue, but (I am assuming) the larger possible swings with crypto mean that both the upside and downside is even greater than with traditional fiat currency trading.
As much as I hate the 'FUD' label often given to anything negative in the crypto space, it is disappointing that even the BBC cannot use an honest title.
Binance is not 'banned' as they say- this is misleading. I am in the UK and still using it, it is only the derivatives products that have been banned.
> it is only the derivatives products that have been banned.
This isn’t correct. It’s any regulated asset that’s been banned. Well... has always been banned. That includes derivatives but also “cryptoassets”. The distinction comes down to whether the FCA considers the product a “security token”, “e-money”, or currency. The first two being prohibited for sale by or through Binance (or any unauthorized entity) without first obtaining the FCA’s permission as they’re regulated products.
Leaving the Tower of Commerce, Brunt had this to say, "The Ferengi commerce authority will not sit idly by and allow profits to be made without getting our share. Let this be a lesson to all financial markets traders."
And, in my experience, the FCA doesn’t find this sort of pedantry too convincing. Where US regulators tend to more be deferential to each entity being separate (provided you’ve jumped through a few small governance hoops) the FCA tend focus on how the entities are actually functioning rather than what the paperwork says.
For those unfamiliar with the cryptocurrency space in general, Binance is the world's largest exchange because they are a global platform. They don't need to cater to western regulations. These regulations aren't cutting Binance out of western markets, they're cutting western citizens out of the largest cryptocurrency market, forcing them to use VPNs and other technologies to bypass the geo blocking.
There are plenty of localized exchanges, like Coinbase, who play well with the regulators in certain geographies. This is not the market that Binance cares to cater to, and that's fine IMO. I'll never use Binance because as a US citizen, I don't feel like my deposits are safe there, mostly because US financial authorities love seizing bank accounts from companies they don't like. This is why the only crypto to USD bridge that I'll use is Coinbase.
I feel like this stance is incredibly detrimental to the future of the economy of the country that I live in, but here we are. Hopefully US regulators (and Canada and UK etc) will realize the long term damage that they're doing before it's too late.
In the UK there are many "contract for difference" exchanges, basically bucketshops. These products are outright unlawful in the US or at least are unlawful in retail-accessible forms.
My understanding is that this action is only about CFD products on binance, not normal buying/selling Bitcoin.
I find it weird that the UK allows so much access to these scam products in general, but I suppose it fits in with the general accessibility of gambling.
(1) CFD isn't an investment, it's just a side bet on the price of something else. It distorts the market for the underlying (by providing a highly uncontrolled supply of it) at the expense of creating tail risk (e.g. CFD house is fine for years and then poof everyone's money is gone). The damage from this doesn't apply to just CFD participants but potentially the market as a whole.
(2) The particular mechanism of CFDs make them extremely ripe for fraud. CFD contracts are against the house so the house has an inherent conflict of interest with their customers. The CFD house can crunch the numbers, blow some money on the real market (or whatever subset contributes to their index price) to dip the price and wipe out a particular set of customers. Sometimes the index prices are based just on bid/ask -- there doesn't even need to be a real trade at the price. Manipulation is hard to detect, and the whole setup where the house is betting against you is unlike the normal situation for investments.
It's even the case that CFD operators-- in the rare case where they detect a customer that appears to actually have positive returns, maybe due to insider info-- will start passing their orders through to another platform, and even riding along/front running them!
(3) Specific CFD products usually have unreasonable terms such as absurd leverage where market volatility almost guarantees the customer will be wreaked. In theory some of this risk could be regulated out, but one can always construct a new product.
So I think sure, you could have an honest CFD house with good controls and products with well shaped risked, and so on... and mitigate a lot of the problems but the incentives are all wrong. And worse, because much (though not all) of the CFD appeal is essentially to a gambling market, the customers actually want the highly volitional highly risky options, they want platforms that will be cheap until they implode, and so on. So in the long run, you shouldn't expect CFD operations to end well.
Other products like ordinary options, or just regulated margin, let you make more complex trades without creating the bad incentives or market risks.
Readit News
The entity that the FCA has acted against is Binance Markets Limited (BML) which the parent Binance Group acquired earlier this year, in part because of its existing registration with the FCA which allowed it to carry out a limited range of regulated activities in the UK.
The FCA has now placed restrictions on BML which remove its ability to carry out those regulated activities -- however BML was not actually doing any business in the UK so the effect of this is limited.
The FCA also issued a consumer warning which, among other other things, reiterated that no entities in Binance Group are registered with the FCA and therefore cannot carry out regulated activity in the UK. Again, the impact of this is limited since the entity that you interact with when using the Binance.com website is not based in the UK, and the FCA does not have jurisdiction over it.
A possibly outcome is that Binance will be a bit more circumspect about offering derivatives trading to UK retail because they want to build a more substantial UK business in the future. We saw this with Bybit a while ago, where they do not allow UK retail to use their website (although they have an exception for sophisticated investors, who can self-certify as an eligible counterparty and continue to trade on Bybit). I wouldn't be surprised to see this.
Why would you say that? Providing services to any British citizen over the internet will fall squarely within the regulatory domain of the UK, regardless of the website used to connect, the physical location of the server or the jurisdiction of the company.
They seem to have a number of offices in places, one per country. The US one is in Fresno, CA.
Their headquarters is in Malta.
They sell derivatives, and they are headquartered in Malta. Who actually uses good or services from these people?
> How can that be? In general, the FCA can only regulate companies that are either based in Britain or that actively promote products there. A bitcoin trading platform registered elsewhere doesn’t necessarily count: according to Forbes Binance is based in the Cayman Islands. Founder Changpeng Zhao sought regulatory approval for Binance Markets, but its main services are unregulated and offered instead by the parent group. It’s not clear what he did to irk the FCA, or whether his customers will care. What’s obvious, though, is that the watchdog lacks powers to police a fast-growing part of the financial sector. (By Liam Proud)
Futile UK crypto curb flags regulatory blind spot
https://www.reuters.com/breakingviews/futile-uk-crypto-curb-...
The "impact" of this is that the regulators are beginning to take actions against the wild-west of the crypto world, regardless of how toothless each individual action is.
Put aside your opinions of cryptocurrencies as a technology...there's no way sovereign governments were going to let this fly. There fireworks are just starting.
> Human society, the historian Niall Ferguson says, oscillates between the dynamic of a metaphorical “tower” and the “square”. Sometimes institutions or leaders control social groups in hierarchical ways, just as church towers overshadowed medieval European cities.
> At other times, horizontal networks shape events, operating like crowds in ancient city squares. The “square” used to work best in small, face-to-face groups, but digitisation now enables peer-to-peer systems to operate on a massive scale.
> Now, however, a “tower” dynamic is entering the frame. On Wednesday, the Bank for International Settlements (the central bankers’ bank that, in a delicious irony, occupies an actual black tower in Basel) issued a striking report that lashed out at the “square”.
https://www.ft.com/content/9481d93d-c7ef-4749-9916-bc860d538...
Well, you say, they wouldn't get registered because they wouldn't have what they would need to provide a fair risk to customers. Then what? People will simply run the exchanges elsewhere and the money will keep getting "lost", "stolen" or seized by the authorities.
> This means that people in the UK are not allowed to use Binance's services to speculate, or bet
> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
So, all is well, just don't bet, speculate. Just buy and sell?
The other aspect for the FCA doing this, will be to curtail calls etc by those who get burned and go running to the FCA who can point out they told you so and it is nothing they can do as not under their remit.
But yes, binance operates outside the UK (Cayman islands - which for me is always a red flag for anything finance), so the net effect upon operation will be zero. However, marketing wise - the foundations have been laid.
One upshot of all this I hope is that web adverts (including youtube etc) may have to filter out these crypto investment ones and see UK residence not see any of them. Least that is my dream hope from this.
Are Rolls Royce (turbine manufacturer and part-time hedge fund) about to start buying forex derivatives from Binance? Seriously, seriously doubt it.
What will happen to the people that already bought such assets?
Or any other number of Forex sites. These sites usually come with a warning that most users lose money. That you can lose more money than you have staked is the issue, but (I am assuming) the larger possible swings with crypto mean that both the upside and downside is even greater than with traditional fiat currency trading.
>> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
These statements have since been removed from the article, because they're incorrect.
Deleted Comment
Dead Comment
This isn’t correct. It’s any regulated asset that’s been banned. Well... has always been banned. That includes derivatives but also “cryptoassets”. The distinction comes down to whether the FCA considers the product a “security token”, “e-money”, or currency. The first two being prohibited for sale by or through Binance (or any unauthorized entity) without first obtaining the FCA’s permission as they’re regulated products.
More info about the distinction here: https://www.fca.org.uk/firms/cryptoassets
> Brunt, FCA!
Dead Comment
There are plenty of localized exchanges, like Coinbase, who play well with the regulators in certain geographies. This is not the market that Binance cares to cater to, and that's fine IMO. I'll never use Binance because as a US citizen, I don't feel like my deposits are safe there, mostly because US financial authorities love seizing bank accounts from companies they don't like. This is why the only crypto to USD bridge that I'll use is Coinbase.
I feel like this stance is incredibly detrimental to the future of the economy of the country that I live in, but here we are. Hopefully US regulators (and Canada and UK etc) will realize the long term damage that they're doing before it's too late.
My understanding is that this action is only about CFD products on binance, not normal buying/selling Bitcoin.
I find it weird that the UK allows so much access to these scam products in general, but I suppose it fits in with the general accessibility of gambling.
(1) CFD isn't an investment, it's just a side bet on the price of something else. It distorts the market for the underlying (by providing a highly uncontrolled supply of it) at the expense of creating tail risk (e.g. CFD house is fine for years and then poof everyone's money is gone). The damage from this doesn't apply to just CFD participants but potentially the market as a whole.
(2) The particular mechanism of CFDs make them extremely ripe for fraud. CFD contracts are against the house so the house has an inherent conflict of interest with their customers. The CFD house can crunch the numbers, blow some money on the real market (or whatever subset contributes to their index price) to dip the price and wipe out a particular set of customers. Sometimes the index prices are based just on bid/ask -- there doesn't even need to be a real trade at the price. Manipulation is hard to detect, and the whole setup where the house is betting against you is unlike the normal situation for investments.
It's even the case that CFD operators-- in the rare case where they detect a customer that appears to actually have positive returns, maybe due to insider info-- will start passing their orders through to another platform, and even riding along/front running them!
(3) Specific CFD products usually have unreasonable terms such as absurd leverage where market volatility almost guarantees the customer will be wreaked. In theory some of this risk could be regulated out, but one can always construct a new product.
So I think sure, you could have an honest CFD house with good controls and products with well shaped risked, and so on... and mitigate a lot of the problems but the incentives are all wrong. And worse, because much (though not all) of the CFD appeal is essentially to a gambling market, the customers actually want the highly volitional highly risky options, they want platforms that will be cheap until they implode, and so on. So in the long run, you shouldn't expect CFD operations to end well.
Other products like ordinary options, or just regulated margin, let you make more complex trades without creating the bad incentives or market risks.