Binance bows to regulators, announces restructuring

The news: The world’s largest crypto exchange will become a centralized entity to ease its compliance across jurisdictions, per Finextra.

How we got here: Since its launch in 2017, Binance has had no formal headquarters despite operating globally, which means it has struggled to obtain regulatory approval anywhere.

But over the past year, regulators have disrupted Binance’s operations by banning its services:

• In June alone, authorities in Canada, Japan, and the UK either shut down Binance’s operations or threatened to for failing to register locally and not abiding by their anti-money laundering standards.
• The exchange also recently said it would discontinue some services in Singapore and faces a US probe into potential insider trading.

Under pressure from all sides, the crypto exchange is ramping up compliance efforts to ease regulatory concerns:

• Binance hopes centralizing its operations in a yet undisclosed jurisdiction will help show regulators everywhere it wants to become a regulated financial institution with “clear records of stakeholders' ownership, transparency and risk controls,” per Binance CEO Changpeng Zhao.
• Binance also recently hired an ex-Treasury criminal investigator as its global money laundering reporting officer and a former Europol dark web specialist to enhance its audits.

Our take: Booming crypto adoption is bringing in record revenues but also makes the industry top of mind among regulators, which is pushing market players to invigorate their compliance efforts.

In the US, Robinhood is doubling down on crypto features following a record Q2, during which crypto trading represented more than half of its transaction revenues. Coinbase also set a revenues record in Q2, while Binance saw a 65% surge in trading volume in September.

Higher trading volumes make it more challenging to monitor suspicious activity effectively, which is increasingly problematic as regulators ramp up oversight. In response, market players will turn to partnering or acquiring crypto regtechs to avoid operational bans that would slow their current growth.

• Mastercard recently acquired crypto monitoring startup CipherTrace to identify illicit activity more easily as it expands its crypto payments offering.
• Coinbase could be next to acquire a regtech: In August, it set aside a $4 billion cash pile in expectation of higher compliance costs.