According to several industry experts, Binance and its founder, Changpeng Zhao (CZ), pleading guilty to US anti-money laundering laws could pose challenges to the cryptocurrency exchange’s ambitions in Hong Kong.
On November 21, Changpeng Zhao stepped down as CEO of Binance and pleaded guilty to violating US anti-money laundering laws, resulting in a $4.3 billion settlement to resolve a lengthy federal investigation. Binance, as a company, also pleaded guilty to similar charges, including the failure to report suspicious transactions with organizations labeled as terrorist groups and websites involved in child sexual abuse materials.
This settlement comes amid escalating regulatory challenges for Binance in the United States, including a lawsuit filed by the Securities and Exchange Commission (SEC) in June that accused the company of commingling customer funds. The cryptocurrency exchange has been taking steps to address these challenges, including laying off over 1,000 workers, witnessing executive departures, exiting certain markets, and selling operations, for example, in Russia.
While several cryptocurrency firms are turning to Asian hubs, especially Hong Kong, for business opportunities amidst increased scrutiny in the US, Binance has not publicly expressed interest in establishing a presence in Hong Kong. Observers note the difficulties Binance might encounter in acquiring a license in Hong Kong, given its regulatory troubles elsewhere.
Despite these challenges, Binance has set up a separate crypto exchange in Hong Kong named HKVAEX, signaling its intent to pursue a license in the city. However, the shared resources between Binance and HKVAEX might complicate the regulatory landscape for the latter, as the guilty pleas and settlements with US authorities could cast a shadow over the broader Binance ecosystem.
Binance-Backed HKVAEX Reportedly Seeks Crypto License in Hong Kong Amid Regulatory Scrutiny
HKVAEX, described as an “independent virtual asset exchange platform,” stated last month that it is preparing to apply for a license in Hong Kong. However, experts suggest that Binance’s legal troubles could complicate the regulatory approval process, especially given the robust requirements set by Hong Kong’s Securities and Futures Commission (SFC) for virtual asset trading platform applicants.
The SFC considers the compliance of substantial shareholders, ultimate owners, or other controllers with anti-money laundering laws and convictions related to money laundering or terrorist financing in Hong Kong or elsewhere. Binance would need to demonstrate to the regulators that it is not effectively controlled by individuals with serious criminal records.
As Binance undergoes a leadership change, with Richard Teng appointed as the new CEO after Changpeng Zhao’s resignation, regulatory scrutiny is expected to extend to the new leadership.
Even with the change in leadership, Binance would need to demonstrate to regulators, such as the SFC, that it is not effectively controlled by individuals with serious criminal records. The SFC has robust requirements for virtual asset trading platform applicants, and any significant ties to individuals with legal issues could impact the regulatory assessment of the license application.
The Director of Licensing and Head of the Fintech Unit at the SFC, Elizabeth Wong, mentioned in a podcast recording that it would depend on how Binance enters the market and its structure when asked about the possibility of Binance obtaining a license in Hong Kong. Wong also noted that Binance is not on the list of virtual asset trading platform operators that have submitted license applications.
The outcome of Binance’s efforts to secure a license in Hong Kong remains uncertain, and the recent guilty plea may impact the regulatory landscape for both Binance and its affiliated entities seeking compliance in various jurisdictions.
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