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Binance: Lessons from the world’s most regulated exchange

February 12, 2024

On paper, Binance is the most regulated exchange in the world.  

The platform hold 12 registrations and five licenses with supervisory authorities across the globe.  These include an operational MVP license from Dubai's Virtual Assets Regulatory Authority and a license with Japan’s Financial Services Agency via its ownership of Sakura Exchange.

It has registrations in France, New Zealand, Spain, Italy, Australia and Sweden, among others, and it has continued to push for approvals in other jurisdictions.

The only other exchange that comes close to that quantum is Crypto.com, with 13.  

One Step Forward

Since 2020, Binance has made notable strides to improve procedures.  It introduced mandatory KYC on registration.  It implements AML checks.  It has appointed compliance officers and MLROs.  It also has a whole host of third party transaction monitoring and investigations services, and has worked with US law enforcement to take down suspected money launderers.

It is also one of the handful of exchanges that voluntarily disclosed its onchain asset holdings post FTX, publishing a list of wallets across multiple blockchains.  In tandem, it has provided information on its Merkle Tree auditing procedures, and permitted user verification of assets.

Binance now has a dedicated Proof of Reserves page, which details the platforms’ and its customers’ assets and ratios.  It is genuinely one of the best resources out there on exchange assets.

As a result, Hoptrail’s Solvency Transparency Index rates Binance as one of the most transparent exchange venues regarding on-chain assets.  Its scores 68%, placing it behind only Deribit (86%), BitMEX (71%) and Bitget (71%).  

Hoptrail’s Solvency Transparency Index measures the financial health of crypto exchanges by assessing disclosures and auditing procedures

Binance’s collection of registrations was also part of a wider effort to signpost a change in direction.  We discussed this pivot in August last year, pointing to the compliance and regulatory hires the exchange was making.

After years of portraying itself as a “significantly decentralised” business operating out of multiple hubs, Binance settled on a headquarters in the UAE last year.

This all helped.  Binance moved up on Hoptrail’s AML Leaderboards, from 77.13 in February 2022 to 85.55 in August.  

Two Steps Back

But Binance continued to court drama.  It was late to the party on mandatory KYC.  It avoided settling on a permanent domicile.  It continues to permit privacy coin trading.  And it continued to commit regulatory infringements.

A string of regulatory notices throughout 2021 was underpinned by US Department of Justice and Internal Revenue Service investigations for alleged money laundering and tax offences.

In April 2022, Binance was then hit with a EUR 3.3 million fine from Dutch regulators.

A snippet of Binance Integrity section on Hoptrail’s Leaderboards.

Licensing Strength
Inferences about Binance’s alleged poor AML controls can be drawn from its licensing data.  

Aside from those we’ve already mentioned, Binance mainly hold registrations in jurisdictions that have low regulatory quality scores: Kazakhstan, Cyprus, Bahrain, Mexico, and El Salvador, for example.

And nothing in some of the marquee jurisdictions including Singapore, Hong Kong, UK, and Switzerland.  

This brings us to an interesting comparison with FTX.  At the time of its collapse, FTX had licenses and registrations in five jurisdictions.  These included a license with VARA in UAE and registrations in Gibraltar, the Bahamas, Japan, and Australia.  But notably, nothing in some of the more stringent countries.

Crypto.com also has a VARA license, and holds registrations in France, Italy, Spain and Australia.  But Crypto.com also holds the coveted license Major Payment Institution Licence from the Monetary Authority of Singapore, following an in-principle approval last year.  

Indeed, six of the top 10 VASPs in Hoptrail’s overall Leaderboards hold licenses in Singapore. And that arguably illustrates the difference between on-paper and in practice.  

How does this look in practice?

Well, Crypto.com currently sit in the Top 10 on Hoptrail’s Exchange Leaderboards.  Binance, by comparison, drops to 66th (from 51st) following yesterday’s announcement.

Want to know more?

If you’d like to find out more about our platform, or how we collect and curate our data, get in touch with the team at info@hoptrail.io or reach out to us here.

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