Press headlines this week excitedly suggested that the UK’s Financial Conduct Authority had banned the sale of cryptoassets. In fact, the FCA merely issued a statement that Binance, as an unregulated cryptocurrency exchange, is not allowed to “undertake any regulated activity in the UK […] without the prior written consent of the FCA.”
However, the FCA’s bland statement stands as a warning to Binance Group. According to the statement, Binance “appear[s] to be offering UK customers a range of products and services.” As the FCA states, “a firm must be authorised by us to advertise or sell these products in the UK.”
Effectively, the warning is addressed to Binance Markets Limited, the unregulated UK subsidiary of the Binance Group. Since the January ban, Binance has continued to offer margin and derivatives trading to UK consumers through its website binance.com.
FCA ban on derivatives linked to cryptocurrency
The FCA had already banned the sale of crypto-based derivatives to retail investors in January this year. The FCA stated that contracts for difference, options, futures and exchange traded notes that referenced certain types of cryptoassets were “ill-suited” to retail customers, as their complexity, lack of reliable valuations, high price volatility and a tendency of the sector to attract financial crime put retail investors at greater risk of financial loss.
Binance has been in the regulatory spotlight in several jurisdictions. In April, the German regulator BaFin threatened Binance with a €5m fine for offering securities-tracking digital tokens without publishing an investor prospectus. The tokens offered exposure to major Bitcoin investors MicroStrategy (MSTR.O), Microsoft (MSFT.O), Apple (AAPL.O), Tesla (TSLA.O) and Coinbase Global (COIN.O).
Last week saw Japan’s Financial Services Agency issue a second warning to Binance for operating in the country via its website without a licence, and the Canadian securities regulator in Ontario crack down on an explosion of cryptocurrency trading platforms, which forced Binance to pull out. In the US, the Internal Revenue Service, the Commodity Futures Trading Commission and the Justice Department are all investigating Binance for unlicensed activity.
Alpay Soytürk, head of compliance at Spectrum Markets, said: “[The FCA have] drawn a clear line in the sand: anyone wanting to provide cryptocurrency investment products or solutions in the UK, must do so in a secure and regulated environment. In this, the FCA is aligning with other major regulators. We are seeing the emergence of a wider consensus, which could give us the global regulatory framework on cryptoassets that the industry desperately needs in order to thrive in the long term while ensuring investors are adequately protected.”
He added: “the onus is on exchanges to play ball, and the FCA has shown that if you don’t appear to be part of the solution, it’s likely to consider you part of the problem, and consequences will follow.”
Mark Hipperson, founder and CEO of Ziglu, an FCA-authorised Electronic Money Institution, also underlined the need for the sector to be regulated, now that cryptocurrencies are becoming increasingly mainstream.
He said: “it is imperative for the industry to review its marketing activity, to ensure that it is not misleading and that it appropriately highlights the potential risks involved in investing in cryptocurrencies.”
Hipperson says Ziglu has seen a tripling in the number of new customers since the start of this year, which he describes as “a flight to quality, as people new to cryptocurrency investing look for firms that are regulated and have the highest safety standards.”
