The world’s largest cryptocurrency exchange has been banned from operating in the UK and has until Wednesday to comply with the ruling by the financial watchdog.
Binance, which allows customers around the globe to trade cryptocurrencies like Bitcoin and derivates linked to them, such as futures, was told to stop ‘any regulated activity’ in the UK under its affiliate Binance Markets Limited.
The move by the Financial Conduct Authority is the latest crackdown on the crypto industry.
Various regulators are growing increasingly concerned about cryptoassets’ potential role in illegal activities like money laundering, as well as poor protection for investors as they become more popular.
Due to the ban, Binance Markets ‘is not currently permitted to undertake any regulated activities without the prior written consent of the FCA’, the watchdog said.
The FCA does not regulate cryptocurrencies themselves, but it does regulate financial products linked to them, which is presumably the activity the FCA is clamping down on.
Laith Khalaf, financial analyst at AJ Bell, said: ‘The Binance website offers derivative products with up to four times leverage on a range of extremely volatile cryptocurrencies, which means gains, and losses, are magnified by a factor of four.
‘It’s not surprising that such extremely risky products have drawn regulatory scrutiny.’
Since January, the FCA has introduced a ban on the sale of derivates and exchange-traded notes that track cryptocurrencies like bitcoin and ethereum to retail investors after it concluded that they are at risk of ‘sudden and unexpected’ losses.
The regulator also introduced the requirement for all firms offering cryptocurrency-related services to register with them and show they comply with anti-money laundering rules.
Binance had applied to become a registered company with the FCA – but it dropped its application last month. That means it cannot operate as a cryptocurrency exchange in the UK.
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Earlier this month, the FCA said that just five firms had registered, and that the majority were not yet compliant.
While the ban means that Binance cannot offer a crypto exchange based in the UK, British investors can still access the group’s services in other jurisdictions.
Binance said the FCA UK notice had ‘no direct impact’ on the services provided on Binance.com.
‘BML is a separate legal entity and does not offer any products or services via the Binance.com website,’ the group tweeted.
And added: ‘We take a collaborative approach in working with regulators and we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules and laws in this new space.’
But the regulator issued a warning about the Binance.com platform, advising people to be wary of online and social media adverts promising high returns on cryptoasset investments.
Binance was also banned by Japan’s financial watchdog on Friday, when it said that company wasn’t registered to do business in the country.
And last month, Bloomberg reported that US officials who probe money laundering and tax offences had sought information from individuals with insight into Binance’s business.
Regulators are cracking down on cryptoassets amid fears they contribute to fraud and money laundering. They are also concerned that investors are at risk of big losses.
Binance group is based in Malta and is led by founder and chief executive Changpeng Zhao. Binance Markets Ltd is its UK arm and is based in London.
Bitcoin rose despite the latest crackdown, with the cryptocurrency rising by around 5 per cent to around $34,800 by 9:30am on Monday.
Last week, it fell below $29,000 for the first time since the start of the year. Since last October bitcoin has rallied from around $10,000 to more than $63,000 in April.
Khalaf said the latest crackdown on Binance isn’t 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,’ he said.