Binance, a cryptocurrency exchange with no headquarters, is reportedly planning to buy banks and payments processors in Brazil as a way into the market.
CEO Changpeng “CZ” Zhao made the announcement at Ethereum Rio, a local blockchain conference in Rio de Jannero, CoinDesk reported on Thursday (March 17). It comes just three days after the world’s largest cryptocurrency exchange signed a memorandum of understanding to potentially acquire a Brazilian securities brokerage firm, Sim;paul Investimentos.
Both that and the acquisition of any banks or payments processors would require approval of the regulators — in Sim;paul’s case the Securities and Exchange Commission of Brazil (CVM) and the Central Bank of Brazil, the firm said in a statement.
Zhao said the exchange would work closely with regulators to help the country’s crypto industry grow “in a healthy and collaborative way,” following the Brazilian Senate’s approval bill to regulate the crypto industry.
Buying a License
Binance has aggressively courted regulatory authorities in what Zhao described last August as “pivoting from reactive compliance to proactive compliance.”
On March 14, the company announced that it had received a crypto-asset service provider license from the Central Bank of Bahrain, followed two days later by a Virtual Asset License from Dubai’s Virtual Asset Regulatory Authority.
Binance is seeking to establish a headquarters following a series of run-ins with regulators throughout the EU and Asia late last year.
See also: Exiting Singapore, Embattled Crypto Exchange Binance Retreats Again
Becoming compliant by buying a regulated bank is not entirely new to the industry. As far back as 2018, Coinbase — long a compliance-focused crypto exchange — bought securities dealer Keystone Capital in order to gain status as a broker-dealer with the U.S. Securities and Exchange Commission. And crypto derivatives exchange BitMEX in January bought 268-year-old German bank Bankhaus von der Heydt as part of its plan to create a “regulated crypto products powerhouse in the heart of Europe,” BitMEX Group CEO Alexander Höptner said at the time.
Read more: Crypto Exchange BitMEX to Buy 268-Year-Old German Bank to Deliver ‘Banking 2.0’
In its case, BitMEX was regrouping after its three founders plead guilty to violating the U.S. Bank Secrecy Act over lax anti-money-laundering (AML) checks.
Fear of Cut-Offs
Binance competitors like OKEx and Crypto.com were able to access to Brazil’s government-backed PIX instant payments system via local partnerships. But talk of suspending PIX — for unrelated reasons — late last year highlights a big benefit: Changes to a country’s political and regulatory climate wouldn’t knock exchanges offline.
Read also: Brazil’s Possible Pix Pause Likely to Cause Disruption
That’s something that has haunted the industry since 2017, when U.S. banks began booting not only exchanges but even existing retail clients who bought crypto with their checking accounts. Wells Fargo’s decision to cease doing business with the Bitfinex exchange led to it being forced to turn to much smaller banks and then shadow banks, one of which allegedly used a partner to sneak funds into the U.S. and promptly stole a fortune from the exchange.
As recently as Nov. 2020, the U.S. crypto industry cheered when Comptroller of the Currency Brian Brooks — a former Coinbase general counsel — proposed and later instituted a rule that would require banks to “provide access to services, capital, and credit based on the risk assessment of individual customers, rather than broad-based decisions affecting whole categories or classes of customers.”
Read more: OCC Finalizes Long-Held Rule On Banking Equality
While not mentioning crypto specifically, the industry was the clear target. In a release, he added, “This proposed rule would ensure that banks meet their responsibility to provide their services fairly since they enjoy special privilege and powers because if the system fails to provide fairness to all, it cannot be a source of strength for any.”
With Brazil apparently on the cusp of regulating cryptocurrency exchanges, purchasing a bank might be easier than getting one to agree to service its clients — or keep servicing them down the road.
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