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UK Binance Regulator Clamps

It was important making explicit exactly what happened here because it was not made very obvious by the BBC nor by the pieces in the FT.

Author:James Pierce
Reviewer:Gordon Dickerson
Jun 29, 2021
It was important making explicit exactly what happened here because it was not made very obvious by the BBC nor by the pieces in the FT.
The entity against which the FCA has proceeded is Binance Markets Limited (BML), purchased earlier this year by the parent Binance Group, partly on account of its existing registration with the FCA that enabled the Group to conduct a limited range of regulated operations in the UK.
The FCA has now imposed limitations on BML, which eliminate its capacity to do certain regulated activities – although BML did not really operate in the UK. This has a limited impact.
The FCA also issued a consumer warning that highlighted, among other things, that the Binance Group does not register any entity with the FCA and so cannot do regulated business in the UK. Again, the impact of this is limited as the business with whom you engage is not headquartered in the UK when you use the website, and the FCA is not responsible.
A possible result is that Binance will be more careful to provide UK retail futures trading since it wants to establish a larger UK company in the future. We have seen this with Bybit a while ago when UK retailers are not allowed to utilize their website (although they have an exception for sophisticated investors, who can self-certify as an eligible counterparty and continue to trade on Bybit). I'm not going to be shocked to see this.
Again, this has a minimal consequence as the company you engage with while utilizing the website is not headquartered in Great Britain and the FCA is not competent to do so.
Why are you going to say that? The provision of services via the internet to any British citizen is entirely covered by the UK regulatory domain, irrespective of the connecting site, the physical location of the server, or corporate country.
The FCA has no compulsory authority over Binance because the physical and financial assets of Binance are not in the U.K. - except that they have a seized office, 3 Beeston Pl, London. It might be little more than a token office. They appear to have a number of offices, one each nation. The United States is located in Fresno, CA. Its headquarters are located in Malta.
They offer derivatives and are based in Malta. Who truly utilizes these people's goods or services?
Do Binance executives, managers, or workers ever plan to transit the UK or its allies' soil? A big deal is becoming a non-grata person with a nation-state.
Well, the reach is limited as long as they do not actively avoid the prohibition. British people may still use a VPN to access the finance deal, but it is not legal. You cannot make the whole management staff unforgivable if your citizens use a VPN to access a prohibited product.
It all illustrates how weak nation governments have become in their abilities to regulate such activities. Binance can be regulated to death, but what about DxDy or Sythetix's decentralized derivatives exchange? It is unlawful here in the US as a retail investor to have more than 3x securities leverage. One can have access to the 10x leverage on Sythetix as a theoretically unlawful retailer, but because it's not safe, it's in this strange gray area. Even if the US eventually comes to comprehend the potential associated with crypt, it cannot be stopped, even if its weight is on top of the US nation-state. This is decentralized. It is decentralized. To block these sorts of transactions, you would have to shut down Eth, Matics, DOT, Solana, Etc. Each org can arrest or point certain people, but it's mostly 'decentralized' and is already on the blockchain.
Crypto assets have gained the heads of regulators. The next challenge is to get your hands on businesses. The UK Financial Conduct Authority on Saturday stated that Binance Markets, the local branch of the world's largest exchange of cryptography, "is not allowed to conduct regulated activities in the UK." Shortly thereafter, Twitter told the business that the notification "has no direct impact on the services of"
How could it be? Generally speaking, FCA may only supervise firms who operate in England or market items there actively. There's no necessary a Bitcoin trading platform registered elsewhere: Forbes Binance says it's located in Cayman Islands. The founding company Changpeng Zhao requested regulatory clearance for Binance Markets, although the core services supplied by the parent business are not regulated. What he did to irk the FCA is not known or whether his consumers would take care of it. What is clear, though, is that the watchdog is unable to oversee a rapidly expanding section of the financial system.
These are apples and oranges. The FCA has far more fangs than the Information Commissioner as a regulator. In addition, the FCA has a far more convincing enforcement mechanism: blocked bank accounts. Facebook is simpler to maintain servers outside the UK than BML is to withhold money from the UK. Any illegal transaction with a UK citizen now has the danger not only of the possible regulatory headaches it may cause but also of notifying the authorities for the account chain.
The FCA also published a consumer advisory that reaffirmed that no businesses in the Binance Group are registered with the FCA and so cannot perform regulated activities in the United Kingdom.
The "effect" is that the regulators start taking action against the wild western part of the crypto sector irrespective of how toothless such action is.
Put aside the views about cryptocurrency as a technology. There's no way that sovereign countries would allow this to fly. Fireworks are only beginning.
DeFi protocols have no systems with KYC/AML. All you know is your wallet. You may buy any token, borrow / loan from this wallet, contribute liquidity to a pool of market makers, etc.
The objective of regulators should be to prevent people from exploiting/scattering others without stopping the creation of innovative financial products.
Defi (at least on eth) protocols are open source so one can verify that they do what they should do and utilize those goods. It would be far from ideal if certain regulators determined that it could not be used for reasons x,y,z.
Regulators have a considerably wider scope for regulating rather than simply ensuring that individuals are not used or defrauded. You do not halt the construction of new financial products, you may not use them for a specific purpose or at all depending on how a specific development affects the list of things for which the products have to be regulated.
Among other things, depending on where you reside, your local regulators can significantly add or delete from this list:
  • Equity
  • Openness
  • stabilization
  • anti-money washing
  • funding of anti-terrorism
  • Ultimate beneficiary tracking
This list was drawn up for conventional finance. After experimenting with the DxDy protocol, it was found that all this is actually impossible. How would you shut them down if they don't - it's a clever contract using eth. Even if you jailed all of them, it "lived" outside the US government until you prohibit all ethical matters.
The FCA states that "fair customer treatment is a requirement for all regulated enterprises regardless of their size or the nature of their activity."
There was a fantastic piece on this imminent struggle lately in the FT: > Human civilization oscillates between the metaphorical 'tower' dynamic and the "square," argues historian Niall Ferguson. Sometimes organizations and leaders have hierarchical influence over social groupings, much as the cathedral towers dominated medieval European cities.
Horizontal networks, at other times, shape events that operate like crowds in old town squares. The "square" used to function best in small groupings, but digitization now allows peer-to-peer networks to work on an enormous scale.
But now the dynamic "tower" is entering the frame. On Wednesday, a startling study was released by the Bank for International Settlements (the central bank, which is a delicious irony is occupying the real Black Tower of Basel).
While the FCA does not control cryptocurrencies, it controls crypto-assets. Companies must be permitted [...] to advertise or sell certain items in the UK. This implies that users in the UK are not able to speculate or gamble on Binance's services
They are however still able to use the website to buy and sell non-regulated cryptocurrencies
So, everything's OK, just don't gamble, speculate. Buy and sell only?
The contrast here is in the purchase and sale of Bitcoins and in the purchase and sale of contracts for differences or distributions on price movements of Bitcoin. The latter is more closely controlled since it can lead to much bigger earnings or losses, even losses over the stacked amount.
Spreadbetting is tax-free in the United Kingdom and last year the FCA prohibited bitcoin spread betting. IG, CMC, and CityIndex all shut down and de-listed all crypto-pairs.
The point is that the FCA raises a red flag, so that individuals who don't usually think may ponder about the recent "invest in crypto" advertisement which has been popular and the newest FOTM.
The second side for the FCA to do this is to cut calls etc by people who get burnt and go to the FCA to say out they told you that, and they can do nothing that they cannot.
But yeah, Binance is outside the UK (Cayman Islands - which is usually a bad signal for me, so the net impact is zero). Marketing-wise, though – the foundations were built.
One outcome is that online ads (including youtube etc) may have to filter out these crypto investment ads and not see any of them at their UK residence. That's the least my ideal hope.
Binance provides a range of derivatives, synthetics, and even tokens generated by users. The cynical idea is that the crypt threatens the monopoly of items such as these in the City of London.
The reasonable approach is that the FCA protects UK residents from the illegal organization's possibly harmful financial goods. The more reasonable is that the FCA is protecting UK residents from an unlicensed organization's possibly hazardous financial goods.
The FCA seldom moves to safeguard UK residents from authorized regulations against possibly hazardous financial goods. The last time, the retail player can't lose more than heavily leveraged bets, was promoted by ESMA, not the FCA.
The FCA seldom protects UK residents from authorized rules against potentially hazardous financial goods.
The mission of the FCA and of regulations, general is not to protect individuals against risk and loss; it is to protect people from scams and ensure that the rules and dangers are kept informed.
Basically, the law does not prohibit individuals from taking terrible judgments, it is there to guarantee that educated decision-making is possible.
All of this was why authorities completely pushed such complicated, high-risk, non-crypto-monetary financial products to ordinary people, who did not comprehend how they operated to quickly gain money, through advertisements in mainstream sites like YouTube.
The last time I know that retail players can't lose more than they are involved in high-leverage bets, ESMA, not the FCA, pushed the game.
Here's the same in Germany. We had no access to options in the stonk style of the USA, the big disappointment of folks watching US Redditors bank GameStop when all we had was holding the stock itself.

We Have No Access To Stonk Choices In American Style

Could you please clarify this? There are numerous dealers in Germany, such as all intermediaries for interactive brokers such as Lynx, Banx, etc., that offer you access to US options markets. It's also rather straightforward to set up.
It is a coronation, as a regulation, hidden. Casinos and machines for fruit are moral, but not crypto?
They won't talk about the intentions of the FCA, but that's a very simple decision for them to justify. If the exchange itself promises specific returns, as stated in the article, then it does not comply with the law and completely violates the regulations.
Financial goods in the UK (and most other countries), without very explicit and detailed disclaimers, are not able to offer any returns that are not assured.
The FCA doesn't distinguish anybody here when I use this rule.
As usual, most crypto holders still believe that these are fresh notions and do not know that the laws are founded on centuries-old experiences and results.
There is, of course, a demand for returns higher than normal! But they operate falsely unless they can guarantee such returns.
"My perpetual motion machine's demand!" isn't a solid argument.
They behave falsely only if they state that these returns are assured and then they are not guaranteed. There were no assurances from AFAIK that returns were assured.
What they stated was that Binance can offer regulated services such as futures and options requiring an FCA license. These permits are readily issued to places such as plus500 wc. You don't acquire securities/assets/stocks/currencies and just gamble on price fluctuations for such products. They're basically gambling.
They're just gambling, you don't purchase securities/assets/stocks/currencies you're just betting on prices.

It Sounds Like You Define The Tangibility Of Gaming

Very few people receive inventory certificates, bond certificates, or currency physically. In some ways, their transactions are just wagers on the numbers in a database.
Are "a gamble on price fluctuations" silver futures contracts? What if the deal is physically concluded and the purchaser takes the silver bars home? Is it "just a bet" yet? What if the contract is always sold before delivery? What if it's a cash-paying futures contract instead? It sounds like you don't think spot fx trading is a game of play. What about the future of FX? What about the CFDs of FX?
What about the lower volatility of synthetic financial instruments than some of the volatile shares.

Are The Gambling?

It sounds like you define gambling as risks you do not accept without giving additional information or complexity. There is an issue regarding leveraging and excessive volatility for individual investors. However, you do not appear to argue that.
The issue with the definition of tangible gambling is that much of our modern relationships are quite abstract, and essentially what you're used to vs what is fresh.
Many popular items are not in the public interest, generally with socialized losses and uncertain cost allocation.
I feel that this judgment concerns Binance in particular, not crypto in general.
Binance is being created and managed by a nation that is increasingly regarded as a foreign opponent. Fiat is controlled by elections-driven democracies, not oligopolies like crypto.
Monetary and fiscal policies can be used to manage economic health. It is part of a large system that also provides real people with education, medical care, transport, and many other services. What does Crypto provide, exactly?
NFTs are pointless waste that no one can enact. Digital barcodes. Barcodes. Countries have strong IP laws in place to preserve and transfer ownership.
Crypto waste electricity. It also squanders human minds that can solve more relevant problems.
Gambling on crypto is as hazardous as it is and we should keep individuals without money away from these things and financial understanding. It's not only an MLM, it's the life of individuals.

Quantum Computing Will Make The Blockchain Obsolete

Crypto is a religion like a meme for some and for many more get rich fast scheme.
Fiat is controlled by elections-driven democracies, not oligopolies like crypto. Cryptocurrencies are far more democratic: the network votes on whether the transaction is genuine using consensus methods such as evidence of work or evidence of stake are presented every time.
Fiat currencies are considerably less democratic: only for the individuals who control them can we vote, not for what they do with the cash. In the United Kingdom, we do not vote for any Bank of England posts.
Monetary and fiscal policies can be employed to manage economic health. It is part of a large system that also provides real people with education, medical care, transport, and many other services. What does Crypto provide, exactly?
Monetary and fiscal policies can still operate without currency control. See the local policies of eurozone countries. All it implies is that the money cannot be printed arbitrarily.
NFTs are pointless waste that no one can enact. Digital barcodes. Barcodes. Countries have strong IP laws in place to preserve and transfer ownership.
You misconceive NFTs. It's not intellectual property, it's proprietary. I can show I possess any token quickly and without faith.
Crypto energy waste. It also squanders human minds that can solve more relevant problems.
Many coins have little energy use over the whole network: see Nano. Even with Bitcoin, how is "waste" energy consumption? It maintains the whole network.
And cryptocurrency research with human brains has had a very positive influence in other domains, such as the RingCT and Bulletproofs+ development of Monero. And I do not know that these minds are transforming all our financial infrastructure.
Quantum computing will nevertheless make the whole blockchain worthless.
Not really. Not really. Although it was feasible to use quantum computing Bitcoin would still be useable. And progress is being made in all cryptos.
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James Pierce

James Pierce

James Pierce, a Finance and Crypto expert, brings over 15 years of experience to his writing. With a Master's degree in Finance from Harvard University, James's insightful articles and research papers have earned him recognition in the industry. His expertise spans financial markets and digital currencies, making him a trusted source for analysis and commentary. James seamlessly integrates his passion for travel into his work, providing readers with a unique perspective on global finance and the digital economy. Outside of writing, James enjoys photography, hiking, and exploring local cuisines during his travels.
Gordon Dickerson

Gordon Dickerson

Gordon Dickerson, a visionary in Crypto, NFT, and Web3, brings over 10 years of expertise in blockchain technology. With a Bachelor's in Computer Science from MIT and a Master's from Stanford, Gordon's strategic leadership has been instrumental in shaping global blockchain adoption. His commitment to inclusivity fosters a diverse ecosystem. In his spare time, Gordon enjoys gourmet cooking, cycling, stargazing as an amateur astronomer, and exploring non-fiction literature. His blend of expertise, credibility, and genuine passion for innovation makes him a trusted authority in decentralized technologies, driving impactful change with a personal touch.
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