BINANCE has asked prime brokers to run more stringent checks to keep United States investors off the crypto exchange in the fallout from last year’s plea deal with the nation’s authorities, sources with knowledge of the matter said.
Since roughly the period around November’s guilty pleas, the world’s largest crypto trading venue has told prime brokers such as FalconX and Hidden Road – which cater to institutional traders – to demand more information from their clients, the sources said, asking not to be identified as the matter is private.
The checks include questions about office addresses as well as where employees and founders are based, and require signed attestations from respondents confirming the accuracy of their replies, two of the sources said.
Binance in November pleaded guilty to violations of US anti-money-laundering and sanctions laws and was hit with a landmark US$4.3 billion penalty. The global platform targeted US customers – including valuable larger traders who deepened liquidity on the exchange – while refusing to comply with the relevant American legislation, the Department of Justice said at the time.
DOJ criticism
Binance employees “called US VIPs to encourage them to provide information that suggested the customer was not located in the United States”, the Justice Department said in its Nov 21 statement.
Against that backdrop, the crypto industry is alert for compliance-related changes at the linchpin trading venue for digital assets. For instance, the exchange has tightened requirements for listing new digital tokens, sources with knowledge of the matter previously told Bloomberg.
“Binance is fully committed to compliance and has made public how it assesses end users who can access the Binance platform,” the company said in response to queries about whether prime brokers have been tasked with stricter checks. “By making its standard transparent, Binance gives clarity to enterprises who want to access its market-leading liquidity.”
The exchange referred to its Binance Link Program, which it said was launched to provide trading and connectivity services for enterprises such as exchanges and brokers, as well as for algorithmic or other automated trading platforms.
A portion of the Binance website also outlines the platform’s methodology for determining whether a corporate entity counts as a US user.
Prime brokers FalconX and Hidden Road declined to comment.
Teng’s challenge
Binance’s co-founder Changpeng Zhao stepped down as chief executive under last year’s plea deal, handing successor Richard Teng the task of rebuilding the exchange’s reputation and market share under the US’s watchful gaze.
The platform’s share of global spot crypto trading volumes slid to about 30 per cent over the course of last year from almost 60 per cent but has since recovered to roughly 40 per cent, according to CCData. A record-breaking surge in Bitcoin’s price over the past 12 months has reignited speculative fervour and trading activity in the digital-asset sector.
Before the crypto comeback, the very future of the sector was in doubt in the wake of a deep bear market in 2022 that exposed a litany of questionable practices, toppling digital-asset platforms such as Sam Bankman-Fried’s FTX.
As in traditional markets, crypto prime brokers aim to give hedge funds and other clients one-stop access to a suite of services, such as financing, technology and research. Binance’s prime brokerage partners can plug investors into the liquidity available on the exchange.
BNB rally
Judging by the performance of BNB, the native token of Binance’s exchange, digital-asset traders are upbeat about the platform’s outlook. BNB has jumped about 80 per cent this year, more than Bitcoin.
Justin d’Anethan, the head of business development in Asia for market maker Keyrock, likened Binance to a large global bank that might pay a fine for similar faults and then “tighten their practices and move on”.
“It is likely that crypto-native investors and maybe even new entrants realise that the compliance faults or the know-your-customer wrongdoings do not really affect the well-functioning of the platform itself, or the solvency and liquidity of the exchange,” he said.
