The Financial Conduct Authority (FCA) has ordered Binance, one of the world’s biggest cryptocurrency exchanges, to cease all regulated activity and issued a warning to consumers about using the platform.
The notice, published at the weekend, comes as regulators worldwide continue to tighten the screw on crypto trading amid concerns about consumer protections and digital currencies being used for money laundering.
Binance has come under close scrutiny in several countries and the FCA said its UK division, Binance Markets Ltd, must seek written permission from the City watchdog before carrying out any regulated activities ‘with immediate effect’.
The regulator stressed that ‘no other entity in the Binance Group holds any form of UK authorisation, registration or licence to conduct regulated activity in the UK’.
Although trading in digital currencies is currently unregulated, Binance and other exchanges offer a range of regulated services, such as derivatives trading.
The FCA has also ordered Binance to display a notice on its website saying it is ‘not permitted to undertake any regulated activity in the UK’.
Binance said it takes its ‘compliance obligations very seriously’, but added the FCA’s notice about its UK subsidiary has ‘no direct impact on the services provided by binance.com’.
Laith Khalaf, financial analyst at AJ Bell, said the move marks a continuation of regulation playing catch up with the development of cryptocurrencies and he believes this will only gather momentum.
‘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,’ he said.
‘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.’
Authorities worldwide have begun taking a tougher stance on crypto, with in particular in the sights of regulators. Japan’s Financial Services Agency warned at the weekend that the company does not have permission to operate in the country.
Last month the German financial watchdog BaFin said Binance’s plans to offer digital tokens designed to track stocks risked breaking its consumer protection laws.
FCA slowly cranking up regulation
Legal experts say the regulator is in a quandary over crypto, given it does not regulate the market, but recognises it is one rife with the risk of potential scams and money laundering concerns.
David Henderson, senior associate at lawyers Browne Jacobson, argues the regulator feels compelled to act after being stung by criticism of its handling of the London Capital & Finance minibond collapse. The Treasury Select Committee last week called on the FCA to be more ‘proactive’ in its approach to regulation.
‘The regulator is therefore scrutinising this space and its participants very closely and taking action on an iterative basis as it feels necessary,’ he said.
The FCA earlier this month published its fourth study on crypto-assets and previously banned the sale of crypto-related derivatives to retail investors last October.
Henderson added: ‘We expect the FCA will continue this iterative approach, keep a close watch on cryptoasset businesses and issue regular warnings and interventions where the FCA deems these necessary to warn consumers.’