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Regulators in Lithuania and Hong Kong became the latest to crack down on Binance on Friday, further complicating the efforts of one of the world’s largest cryptocurrency exchanges to do business in key jurisdictions around the world.
Lithuania’s central bank said that a Vilnius-based payment subsidiary Binance was providing “unlicensed investment services” in the country. The Hong Kong markets regulator also issued a warning regarding the exchange’s stock token exchange program, which was under review earlier in 2021 in the UK and Germany. Binance said it would shut down the token system for “trading” reasons.
The latest censorships, which follow similar moves from Italy on Thursday and the UK last month, could further limit Binance’s ability to connect to the traditional financial system.
Global financial watchdogs have expressed concern over issues such as securities rules and consumer protection. At the same time, Binance has struggled to keep its compliance function at the height of its rapid growth, people familiar with its operations said.
The UK’s Financial Conduct Authority warning in June, while limited in scope, turned out to be the first in a series of major regulatory and private sector responses to one of the market’s biggest players from cryptography to the world.
This prompted the big banks Barclays and Santander to ban their customers from sending funds to the Cayman Islands incorporated company. Clear Junction, a British payments group that had connected Binance to major euro and pound money transfer networks, also halted the exchange this week.
“We take a collaborative approach in working with regulators and we take our compliance obligations very seriously,” the exchange said Friday.
Most of the group’s exchanges are in crypto assets and the sophisticated derivatives linked to them, but Binance relies on traditional and generally regulated companies to allow clients to trade hard currencies.
Lithuania’s intervention could damage this link with payment entities in Europe. The Binance UAB subsidiary, which is owned by managing director Changpeng Zhao, acts as a payment “agent” for the group, according to the exchange’s website.
The exchange told the Financial Times that Binance UAB “does not provide investment services and does not operate or control Binance.com.” However, the entity’s articles of association, filed last year, indicate that its main activities include “investing in virtual assets” and “setting up funds to invest in virtual assets.” The exchange’s terms of service had also described the company as a Binance “operator” – which it defines as “parties that manage Binance” – until at least July 5.
The group said Lithuania’s warning “has no direct impact on the services provided on Binance.com.”
Binance also has ties to Lithuania through Contis, which issues the group’s Visa-branded debit card. The card is available throughout the European Economic Area, a block that includes members of the EU and other countries in the region.
Contis indicates on its website that cards in the EEA are issued through a subsidiary licensed by the Lithuanian central bank. Contis declined to comment on his relationship with Binance.
Also on Friday, Binance announced that it would be shutting down its equity platform, which allows users to buy and sell tokens that reflect the stock prices of companies such as Tesla and Apple. The announcement came around the same time as Hong Kong’s warning about the program.
The FT first reported in April that European regulators were reviewing Binance’s stock tokens. German financial watchdog BaFin said the tokens likely broke securities rules. Binance told the regulator its view was based on a “misunderstanding” of the product and called on BaFin to back down. However, BaFin refused to comply.
Adam Samson can be contacted at [email protected] or on Telegram @adamsamsonFT.
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