Binance/FCA: watchdog’s crypto trading ban lacks bite

Regulatory rulings are proving as cryptic as the electronic currencies they are struggling to police. Apparently hardline action from the UK’s financial watchdog against Binance loses its bite on closer inspection. The intrinsic ambiguities of cryptos mean plenty more headaches lie ahead for officialdom.

The Financial Conduct Authority (FCA) has declared that crypto platform Binance and its UK subsidiary cannot tout for business in the UK and must make it clear that business is unregulated. Critics say cryptos can be deployed for money laundering, a big focus for the FCA, among other illegal purposes.

Broadening curbs on cryptos in the UK are reminiscent of the FCA’s ban on derivatives known as binary options. These were used by some unscrupulous operators to swindle reckless retail investors. The trade continued offshore.

The same applies to Binance. Investors just have to take the risk of moving money outside the UK’s jurisdiction. The business, one of the world’s biggest crypto platforms by trading volume, is unlikely to see demand collapse as a result of the FCA curb. 

Founded four years ago by Chinese-born developer Changpeng Zhao, Binance provides services such as digital coin and futures trading. It claims to be a decentralised organisation without headquarters. One marker of its popularity is the volatile price of its own Binance Coin. This has a market value of $44bn, according to data from CoinGecko. which makes it the fourth largest digital currency.

The FCA is using rules written in the aftermath of the financial crisis, before cryptocurrencies became a global phenomenon. The tokens, seen as a subdivision of currencies, are not a regulated asset.

Regulators are becoming increasingly rattled as cryptos edge towards the financial mainstream. The Commodity Futures Trading Commission is investigating Binance’s US affiliate to see if it let users trade derivatives in violation of rules. Online US trading app Robinhood reportedly faces a listing delay as watchdogs assess its crypto trading business.

Financial newcomers generally seek respectability through regulation. Binance’s UK subsidiary was created with this aim. But crypto fans still relish outsider status. Lack of oversight does not carry the same stigma it might elsewhere. 

The FCA’s swing at Binance prompts two other observations. First, watchdogs cannot give crypto businesses regulatory cover unless transactions and clients are traceable. Second, stricter regimes will displace business to laxer ones until global standards are agreed.

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