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Pivot: How Binance changed its compliance strategy

February 12, 2024

On 15 August 2022, Binance announced it had secured preliminary approval from the Astana Financial Services Authority to operate in Kazakhstan.  The approval, Binance said, made it the most licensed crypto-asset marketplace globally.

Over the past 10 months, Hoptrail has been charting Binance’s compliance performance through our Risktrail platform. In this blog we dive deeper into crypto’s largest exchange by volume.


Legacy Issues

In the past, concerns were raised publicly over Binance’s structure and levels of transparency.  This was driven in part by a lack of a defined headquarters, a horizonal operating set-up, and frequent censure from regulators.  

These issues were compounded with the leak of the so-called “Tai Chi document” in 2020, which detailed the exchange’s alleged (but unconfirmed) attempts to circumvent US regulation through its subsidiary Binance US.  

Matters arguably came to a head in May 2021, when Binance was placed under investigation by the US Department of Justice and the Internal Revenue Service for alleged money laundering and tax offences.  Altogether, these issues resulted in a persistent erosion of Binance’s reputation.

About Turn

In early 2021, Binance hired two former FATF executives, Rick McDonnell and Josée Nadeau, as compliance advisors.  This was part of a wider attempt to strengthen internal controls, coming amid a string of regulatory warnings in the final months of 2021.

Most notable among these warnings was the Cayman Islands’ announcement that Binance, Binance Group, and Binance Holdings Ltd were not registered with the regulator and were therefore prohibited from operating in the country.

The issue prompted a significant shift in strategy within Binance.  It became focused on regulations.  Publicly, it embarked on an effort to obtain registrations and licenses globally to transform into the world’s most licensed exchange.  

In 2022 Binance relocated to Dubai and announced a Specialist License from its newly created Virtual Asset Regulatory Authority (VARA) - the first of its kind.  

In May 2022 Binance announced regulatory approval in France, Bahrain, and Italy.  This was followed by Spain in July.  Kazakhstan rounded off the set with approval earlier this month.

Five new licenses in less than three months is a significant accomplishment.  Due to the changes, Risktrail’s Exchange Leaderboards has seen Binance move from 77.13 in February 2022 to 85.55.  The exchange now sits ahead of notable rivals Kraken, SwissBorg, and Huobi Global.  

Key Takeaways

There are several lessons to take from Binance’s journey.  One is strategic.  Binance now has at least eight licenses and/or registrations globally – most of those obtained in the last 12 months.  It also now has mandatory KYC procedures, well-defined AML policies and a vast compliance team.  

The second is external: the development (and arrival) of regulatory clarity.  Previously, actors could capitalise on regulatory grey areas.  However, with more structured frameworks, regulators are now synchronising efforts to clarify regimes globally.  

Binance has leveraged this regulatory clarity.  The approvals it has won has led to a slow but noticeable shift in the public narrative.  

More broadly, these events show the need to align to new regimes - not just as a strategic goal, but as a long-term commercial and reputational necessity.  

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