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Binance plans transition away from “unauthorised” stablecoins, New York orders crypto firms to improve their complaints handling, and the US Treasury finds that NFTs are “highly susceptible” to financial crime.
Binance, the world’s largest crypto exchange by volume, will impose new restrictions on stablecoins for users in the European Economic Area (EAA), ahead of a key deadline for the EU’s Markets in Crypto-Assets (MiCA) regulation.
On Monday (June 3), Binance confirmed that “unauthorised” stablecoins will be “smoothly transitioned” to make way for regulated alternatives as per MiCA rules.
On June 30, when MiCA’s stablecoin provisions come into effect, Binance will prohibit EEA users from accessing unauthorised stablecoins across a range of product lines.
These include rewards, loans, spot copy trading, margin trading, auto invest, peer-to-peer (P2P) trading and non-fungible tokens (NFTs).
However, across the two main features of the Binance exchange — spot trading and conversion — unauthorised stablecoins will remain available, but with certain conditions.
To “minimise market disruption”, Binance has confirmed that spot trading pairs using unauthorised stablecoins will remain available “until further notice”.
For crypto-asset conversions, EEA users will be able to convert out of unauthorised stablecoins after June 30, but will not be able to convert into unauthorised stablecoins.
“Binance's approach aims to fulfil MiCA objectives smoothly by transitioning users from unauthorised stablecoins to regulated stablecoins over time, as more regulated stablecoins become available in the market,” the company said.
Although Binance did not mention any particular stablecoin by name, all eyes are on Tether, the world’s largest stablecoin issuer, which has already indicated that it cannot comply with MiCA.
In April, as covered by Vixio, Tether CEO Paolo Ardoino said the company would ultimately have to pull out of the EU due to MiCA’s rules on licensing and custody of reserve assets.
“At Tether, what particularly bothers us about MiCA are the very strong constraints on how you can manage your reserves,” he said.
“If you are a small stablecoin issuer, 30 percent of your reserves must consist of cash deposits at a bank. In the case of stablecoins of systemic size like ours, this requirement rises to 60 percent.
These requirements are “particularly difficult” for stablecoin issuers that need to be fast and flexible when redeeming tokens, Ardoino said, and expose the stablecoin to the risk of bank runs — as in the case of Silicon Valley Bank.
EU still waiting on regulated alternatives
To date, no major stablecoin issuer is authorised under MiCA.
MiCA establishes that a stablecoin cannot be offered to the public unless the issuer is authorised within the EU as an electronic money institution (EMI) or a credit institution.
Circle, issuer of USDC — the second-largest stablecoin after Tether — has applied for an EMI licence in France, but is still waiting to hear back from the local regulator.
At present, eight of Binance’s top ten trading pairs use Tether, while the remaining two use FDUSD, a stablecoin issued by Hong Kong firm First Digital.
With the vast majority of crypto trading in the EU conducted using unauthorised stablecoins, EU regulators are set to run into compliance issues after the June 30 deadline.
Systemically important stablecoins such as Tether and FDUSD cannot be easily replaced, and viable alternatives are few in number.
In the meantime, switch euro-denominated trading pairs could offer a solution, but these trading pairs — which are offered by Bitvavo, Kraken, Coinbase, Binance and others — currently have little volume compared with Tether or FDUSD.
According to Kaiko Research, euro-denominated trading volume across the EU hit €15bn in December last year, its highest monthly reading in 2023.
However, this pales in comparison to Binance’s most popular trading pair (Bitcoin to FDUSD), which in a single day can turn over more than $3.5bn across all markets.
New York issues new guidance for handling crypto complaints
The New York State Department of Financial Services (DFS) has published new guidance that aims to improve how regulated crypto firms handle customer complaints.
The guidance applies to firms that hold a New York BitLicense and to limited purpose trust companies that are authorised to engage in virtual currency business.
Adrienne Harris, superintendent of the DFS, said the guidance is intended to ensure that customer complaints are resolved in a “timely and fair” manner.
Based on DFS reviews, the regulator said that existing customer service policies and procedures among firms are “unlikely to be sufficient” unless the guidance is incorporated.
The guidance includes detailed instructions on how firms should handle phone and electronic text communications with customers, including response times and periodic updates.
Phone and text channels must be monitored by human customer service representatives, and staff must be properly trained and able to provide information and assistance that is specific to the customer’s complaint.
If a firm uses AI at any point during a customer service process, this must be flagged in a “clear and conspicuous” manner at the beginning of the interaction that the customer is not communicating with a human.
Effective as of Q3 2024, the guidance also introduces new reporting obligations for firms.
During examination or in response to a DFS request, firms must be able to provide a quarterly tabulation of customer service requests and complaints received.
This data should indicate the topic, the medium by which the request or complaint was received, and an average time to resolution score.
NFTs 'highly susceptible' to financial crime, says US Treasury
The US Treasury has published a 2024 risk assessment looking at how NFTs could be exploited for money laundering, terrorist financing and other financial crime purposes.
The report finds that NFTs are “highly susceptible” to use in fraud and scams, and that NFTs are used to launder proceeds of predicate crimes.
However, the Treasury found little evidence that NFTs are currently being used in terrorist finance or proliferation finance activities.
“I encourage the private sector to use the findings of this assessment to inform their own risk mitigation strategies to prevent illicit actors from abusing NFTs and NFT platforms,” said Brian Nelson, Treasury undersecretary for terrorism and financial intelligence.
