Binance, one of the world’s largest cryptocurrency exchanges, has ceased operations in Ontario after opting not to become registered as a regulated crypto trading platform with the Ontario Securities Commission.
In a blog post to account holders late last week, the Cayman Islands-based crypto exchange said Ontario would become a “restricted jurisdiction” on June 26, and advised Ontario-based users to close their accounts by Dec. 31 this year.
Separately, a U.K.-based affiliate of Binance called Binance Market Ltd. was banned by the country’s Financial Conduct Authority on Monday for being unregistered. The FCA also warned the exchange it had until the end of June to remove all advertising and financial promotions targeted at U.K.-based users.
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The FCA requires crypto exchanges based in Britain to register with it. That rule, however, does not apply to foreign-based platforms such as Binance and Coinbase, which means U.K. users on Binance’s main site, Binance.com, were not affected by the FCA’s Monday ruling.
The crackdown on Binance comes amid global regulatory scrutiny of the booming crypto economy, which has attracted investors in droves over the past 18 months and galvanized the growth of new crypto-related financial products. Regulators, however, have repeatedly expressed concern about fraud and money-laundering activities on unregulated crypto trading platforms.
In the United States, one of Binance’s entities, Binance Holdings, is the subject of a probe by the U.S. Securities and Exchange Commission (SEC) into money laundering and tax irregularities. Japan’s securities regulator also warned Binance last week to cease operating in the country because the platform had yet to register with authorities.
In late March, the Canadian Securities Administrators – an umbrella group of all 13 provincial and territorial securities regulators – warned crypto trading platforms operating in Canada they had until April 21 to contact authorities to begin the process of getting registered.
At least 48 platforms have started the registration process in Ontario, but three – ByBit, KuCoin and Poloniex – are facing enforcement action from the OSC for not complying with the CSA’s warning. Hundreds of exchanges remain unregulated and continue to offer trading services to Ontario residents.
Binance, whose CEO is Chinese-Canadian businessman Changpeng Zhao, did not respond to multiple queries on whether it was planning to cease operations in provinces beyond Ontario. It is also unclear if the company received a notice from regulators asking it to stop operating because it failed to register, or if the company voluntarily decided to shut down in the province. The OSC did not respond to a request for clarification.
Lori Stein, a partner with Bay Street law firm Osler, Hoskin & Harcourt LLP, suggests Binance could have concluded the cost of compliance in Ontario was not justified by the size of the market. “This presents an opportunity for local, Canadian-based crypto trading platforms that are coming into compliance to service customers that have been displaced by Binance’s closure,” Ms. Stein told The Globe and Mail.
But Binance’s appeal as a crypto exchange lies in its broad product and services offerings, much of which Canadian crypto exchanges have been unable to replicate, according to Jonathan Ip of the crypto-focused law firm Iterative Law.
“It is very significant to Ontario users that this exchange can no longer operate legally in this province,” Mr. Ip said. “Only Binance and a few other large international platforms provide services like Initial Exchange Offerings [a fundraising event that is administered by an exchange].”
His comments were largely echoed by Brian Mosoff, the CEO of the Toronto-based fintech company Ether Capital, who said Binance was one of the only exchanges in the world with high liquidity and access to a wide range of tokens, offering investors “the cutting edge of what was hot in the space, in addition to high security.”
“Though the platform may not have checked the boxes that make financial regulators happy, there’s no question it is a top player in this new world,” he added.
Beyond tightening rules for crypto exchanges, Canadian regulators have also recently expanded the kinds of crypto assets that investors are allowed to trade on regulated platforms. For example, regulators last week gave the green light to Wealthsimple Crypto, the platform owned and operated by financial services company Wealthsimple, to offer 14 more tokens in addition to bitcoin and Ether.
Regulators also approved the transfer of crypto assets from other platforms to Wealthsimple, a core function of most other large crypto exchanges such as Binance and Coinbase that had placed them at an advantage.
But Wealthsimple’s decision to comply with domestic crypto regulations every step of the way has arguably put the company in a less competitive position compared with foreign platforms that have risked not getting regulated. In a June 22 Twitter thread, Wealthsimple’s chief legal officer Blair Wiley said there were “some good things” about the OSC’s decision to allow the company to expand its crypto offerings, but there were also “issues.”
Specifically, Mr. Wiley implied Wealthsimple was unhappy about being blocked from offering controversial crypto token Tether, and had concerns about a rule that Ontario investors on its platform were subject to a $30,000 limit when investing in tokens other than bitcoin, Ether, Litecoin and Bitcoin Cash. Wealthsimple is so far the only crypto exchange subject to these rules.
Mr. Mosoff, who also sits on the Investment Industry Regulatory Organization of Canada’s (IIROC) crypto-asset working group, said he would much rather have seen an “overlap” in timing: Canadian exchanges being allowed to ramp up their product offerings before Binance got pushed out of the province.
“At this point in time, Binance leaving is not great. There should really be no gap for investors who are looking for token access and to experiment with new crypto activities,” he said.
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