Week In Crypto: Binance Quits Canada As New Rules For Trading Platforms Go Live

May 19, 2023
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Binance runs into regulatory hurdles in Canada and Australia, France offers sanctuary to US crypto firms seeking clearer regulations, and Tether announces plans to back its stablecoin with more bitcoin.

Binance runs into regulatory hurdles in Canada and Australia, France offers sanctuary to US crypto firms seeking clearer regulations, and Tether announces plans to back its stablecoin with more bitcoin.

As Canada’s federal securities regulator moves ahead with tighter rules for crypto exchanges, Binance has announced that it will pull out entirely from the Canadian market.

Addressing its Canadian users, Binance said that after evaluating the latest rules from the Canadian Securities Administrators (CSA), it determined that it could no longer do business in the country.

“Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time,” the company said.

“We put off this decision as long as we could to explore other reasonable avenues to protect our Canadian users, but it has become apparent that there are none.”

In February, the CSA published new guidance outlining “enhanced investor protection commitments” that it expects from crypto-asset trading platforms.

As noted by Stan Magidson, chair of the CSA, the new guidance was formed in response to the growing number of insolvencies taking place among crypto exchanges.

With a view to becoming fully regulated, the guidance required crypto exchanges to file a “pre-registration undertaking” within 30 days of the CSA’s notice.

The undertaking included commitments to safe custody and segregation of clients’ assets, and a prohibition on the offering of margin, credit or other forms of leverage.

It also included a prohibition on exchanges allowing clients to purchase or deposit stablecoins and “proprietary tokens”, such as Binance’s BNB token, without prior written consent from the CSA.

“While we do not agree with the new guidance, we hope to continue to engage with Canadian regulators aimed at a thoughtful, comprehensive regulatory framework,” said Binance.

“We are confident that we will someday return to the market when Canadian users once again have the freedom to access a broader suite of digital assets.”

Binance dropped by payments partner in Australia

Following the announcement of Binance’s withdrawal from Canada, the exchange also informed users that it has suspended certain Australian dollar (AUD) deposit and withdrawal methods.

With “immediate effect”, Binance said it can no longer facilitate deposits and withdrawals using PayID, an instant payment service offered by Australian Payments Plus.

The move comes after Cuscal, Binance’s third-party payment service provider (PSP), abruptly parted ways with the exchange.

In the meantime, Binance said it is “working hard” to find an alternative provider and advised customers to use debit or credit card or Binance’s peer-to-peer (P2P) marketplace to fund their accounts instead.

Several hours after Binance’s statement, Australia’s Westpac bank announced that it has launched a new transaction monitoring system that will block payments from customers to crypto exchanges.

According to Chris Whittingham, general manager of risk and fraud operations at Westpac, this will include payments to Binance.

“We’ve determined that high-risk exchanges are predominantly where scam money has ended up,” he told the Australian Financial Review (AFR), inferring that Binance is one such exchange.

“Digital exchanges have a legitimate role to play, but we have blocked access to some overseas exchanges that are used more frequently than others for scams.”

You’re welcome here, French regulator tells US crypto firms

In France this week, the head of a financial services regulator has offered a lifeline to US crypto firms that are looking to take refuge from regulatory uncertainty back home.

While discussing France’s new licensing regime for crypto-asset service providers (CASPs), Benoît de Juvigny, secretary general of the Autorité des Marchés Financiers (AMF), said that France is happy to offer its services.

“In France, we are proud to be pioneers,” he said. “If American players want to benefit, in the very short term, from the French regime, and from the start of 2025 from European arrangements, clearly they are welcome to.”

Following a report from CoinDesk, de Juvigny’s comments were picked up by the Republican arm of the House Financial Services Committee, which shared a link to the article on Twitter.

“This is more evidence that SEC chair Gary Gensler's regulation by enforcement regime is pushing digital assets overseas,” the Republicans said, referring to the head of the Securities and Exchange Commission (SEC).

“Congress, not the SEC, must provide legislative clarity for the digital asset ecosystem so this innovation can thrive in American markets.”

The term “regulation by enforcement” has appeared frequently in Coinbase’s statements and ongoing lawsuits with the SEC, and has been amplified by Republicans on the House Financial Services Committee.

Last month, Representative (R-NC) Patrick McHenry said that as chair of the committee, he aims to put in place laws that will prevent the SEC from engaging in arbitrary regulation of crypto-assets.

“That legislation will provide a distinction between what is a commodity and a security in the digital realm and digital asset ecosystem,” he said. “And we'll have a regulated stablecoin at the federal level.”

On Thursday (May 18), the committee met for its latest hearing on a bipartisan bill that would bring stablecoins under federal regulation.

A not-so-stable stablecoin

Finally, this week Tether announced that it intends to increase the amount of bitcoin it holds as reserves backing its US dollar stablecoin.

Starting this month, Tether said it will “regularly” allocate up to 15 percent of its net realised operating profits towards purchasing bitcoin and will self-custody it.

The move follows a revelation in Tether’s Q1 “Assurance Report” showing that Tether already holds $1.5bn of bitcoin as reserves, or about 2 percent of the total.

As major jurisdictions move towards tighter regulations on stablecoins, Tether has come under increased criticism for its unusual reserves and lack of independent financial audits.

As John Reed Stark, former head of internet enforcement at the SEC, has written, Tether has been promising to undergo an independent audit since 2015, but has still not made good on that promise.

“Tether’s fundamental business, the essence of everything Tether does, is tied exclusively to Tether’s financial reserves,” he said. “Yet those reserves remain unaudited, unconfirmed and therefore dubious.

“This is what those in the business of investigating fraud would call a ‘red flag’.”

In 2021, the Commodities Future and Trading Commission (CFTC) ordered Tether to pay $41m in fines for misrepresenting its stablecoin reserves.

From 2016 to 2018, the CFTC found Tether’s stablecoin was fully backed only a quarter of the time during a 26-month sample period.

The CFTC also found that instead of holding all its stablecoin reserves in US dollars — as was represented at the time — Tether relied upon unregulated entities and third parties to hold funds comprising the reserves.

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