The road to payments processing is littered with potholes, and it appears Binance, the world’s top cryptocurrency exchange, drove into one Monday (March 7).
That’s when the Binance Group, the umbrella organization that owns the Binance exchange, announced the formal launch of Bifinity, a payments technology firm offering payments processing through partnerships with Checkout.com and Paysafe.
Read more: Binance Jumps Into Payments Processing, Eyes Web3
In creating its own crypto-to-fiat payments service, Binance is trying to bridge the gap between the cryptocurrency industry and the traditional financial industry.
The U.K.’s Financial Conduct Authority (FCA), which oversees both cryptocurrencies it deems to be securities and crypto derivatives, is not happy.
Unable to Supervise
The specific reason for the FCA’s concern is that at the same time as the launch announcement, Bifinity announced a strategic partnership with Eqonex, a Singapore-based, Nasdaq-listed cryptocurrency digital investments firm.
However, Eqonex owns FCA-regulated crypto custody firm Digivault. The partnership therefore appears to essentially give Eqonex — and through it, Binance — control of Digivault.
That’s a problem because back in June, the regulator effectively booted Binance out of the country, ordering it to place a notice on the main Binance.com website saying that its U.K. arm, Binance Markets Limited, was not allowed to do business in the country.
The reason given was that the FCA felt the main Binance Group, which has no formal headquarters and only recently began a proactive regulatory compliance campaign, “is not capable of being effectively supervised,” the agency said Monday.
While it technically did not threaten Digivault, the FCA noted that it “can take steps to suspend or cancel the registration of a crypto asset business if it is not satisfied the firm or its beneficial owner is fit and proper.”
That’s not the only part of the deal the FCA has problems with. Back in February, the FCA said it was “concerned” about a deal that gave the Binance exchange access to Paysafe’s U.K. payments network — including the Paysafe Rapid Transfer digital wallet payment solution — something formalized by the Bifinity launch.
See more: FCA ‘Concerned’ About Binance Accessing UK Payments Network
The FCA has taken a hard line against cryptocurrency exchanges of late, leaving very few with permission to operate in the U.K after a March 31 deadline for complying with stricter new anti-money laundering (AML) regulations.
Read more: UK May Boot Almost 100 Crypto Firms as Anti-Money Laundering Deadline Approaches
It has also been cracking down on what it calls “misleading” ads that do not give consumers sufficient warning of the riskiness of cryptocurrency investing.
See more: Ban of ‘Misleading’ Ads By UK Regulator Revives Debate Over Crypto Regulation
Binance to Eqonex
The connection involves a fair number of companies that are subsidiaries of Eqonex or share Binance as a parent company. But the upshot is that by getting into the highly regulated payments processing field, Binance has bought itself more trouble — or exacerbated existing troubles, at any rate.
Let’s start with the FCA’s phrase “beneficial owner.”
Binance Group owns both Bifinity and the Binance exchange that is the core of the company. Bifinity’s “strategic partnership” with Eqonex involves loaning it $36 million in a transaction that gives Binance Group “the right to appoint, from within Bifinity, the chief executive officer, chief financial officer, and chief legal officer of Eqonex as well as nominate two seats on Eqonex’s board of directors.”
That, apparently, sounds like ownership to the FCA.
If Binance Group controls both Binance Markets Limited (BML) and Eqonex, and Eqonex owns Digivault, there is a connection between the two that could break the FCA’s ruling that BML “is not currently permitted to undertake any regulated activities.”
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