FCA issues warning against Binance backdoor re-entry into UK payments network—again

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The U.K. financial industry watchdog once again sounds a warning over Binance’s backdoor re-entry into the country’s regulated financial market. Binance recently launched a payments subsidiary through which it invested in a regulated U.K. entity, but the Financial Conduct Authority (FCA) says the exchange’s track record makes the deal a great concern.

Binance announced the launch of Bifinity on March 7, describing it as the exchange’s “official fiat-to-crypto payments provider.” It said that Bifinity would avail services such as seamless buying and selling of digital assets and payment integrations to merchants through plug-and-play APIs. 

It’s the tie-up between the newly-launched entity (although Bifinity has been operational for months before the March 7 announcement under the name Binance UAB) and one FCA-regulated firm that has the regulator concerned.

Binance announced that Bifnity had entered into a strategic partnership with Eqonex limited (NASDAQ: EQOS), a Nasdaq-listed digital asset firm that operates an exchange, the Digivault digital asset custodian, and the Bletchley Park Asset Management unit. 

As the FCA revealed in its statement, Digivault is one of the entities registered by the watchdog under the Money Laundering Regulations. 

“As a result of the transaction, individuals and entities that are part of the Binance Group may have become beneficial owners of Digivault for the purposes of the MLRs,” the regulator said.

As Binance stated in its press release, Bifinity would invest $36 million through a convertible loan with an 18-month maturity. Its initial conversion price is $1.89 per share.

Eqonex revealed more details about the loan and just how much control the tie-up would give Binance in the publicly-traded entity. Through Bifinity, Binance can appoint the CEO, CFO, and Chief Legal Officer and nominate two seats on the firm’s board of directors.

Binance would effectively get a backdoor into the U.K. payments system with the investment. As the FCA revealed, this would be against its explicit orders under which it doesn’t permit Binance to undertake any regulated activities without the regulator’s written consent. 

“This requirement was put in place because, in the FCA’s view, Binance Markets is not capable of being effectively supervised,” it said.

The regulator further said it was blindsided and didn’t get to probe the deal before it was closed.

“The FCA did not have powers to assess the fitness and propriety of the new beneficial owners or the change in control before the transaction was completed,” it said, further claiming that it has the power to thwart the deal.

“The FCA can take steps to suspend or cancel the registration of a cryptoasset business if it is not satisfied the firm or its beneficial owner is fit and proper. The FCA also has powers to suspend or cancel a firm’s cryptoasset registration on a number of grounds, including where a firm has not complied with obligations under the Money Laundering Regulations,” it added.

When asked about the FCA’s concerns, a Binance spokesperson claimed that the exchange had noted it with interest and “looks forward to continuing the dialogue with the FCA.”

Chi-Won Yoon, the Eqonex chairman, declined to comment on the regulator’s concerns, saying that his firm had partnered with the embattled exchange since they “share a vision to build a digital asset ecosystem that provides institutions and individuals with safe, compliant and regulated access.”

This is the second time in less than a month that the FCA is expressing concern over Binance’s attempts to re-access the U.K. payments industry, from which it was booted by the watchdog. 

As CoinGeek reported in late February, Binance had partnered with Paysafe, a regulated payment processor, which effectively gave it access to the market it had been banished from in June last year.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.