How does the world's largest crypto exchange, Binance, keep doing business in Europe without a license? Explained

Crypto exchange Binance: Binance Holdings Ltd., the world’s largest crypto exchange, was about to get kicked out of the European Union.

Binance had failed to get a key regulatory license — an outcome that was not entirely surprising — but now, months after it was set to leave the EU, the company is still doing business there. That’s due to a medley of side doors and workarounds that have allowed the firm to express confidence about continuing to operate in the 27-member-state bloc, according to people familiar with the matter.

Binance license Europe

A few crucial factors are emboldening Binance to maintain customers in the EU, where its licensing issue has so far been more of a barrier than a blockade, the people said.

One is a provision that lets unlicensed crypto firms bring in customers who sign up of their own accord, rather than through a marketing campaign. Binance has interpreted this “reverse solicitation” clause as something that means it can onboard new customers across the region, the people said.

Binance has also been routing trading for some of its EU-based customers to an entity in Abu Dhabi, which is governed differently, said the people, who were not authorized to speak publicly.

Binance MiCA license EU

Altogether, it paints a portrait of a new regulatory regime — known as Markets in Crypto-Assets, or MiCA — that was intended to regulate crypto firms across the region in a uniform way, but has so far not been effective in ejecting the largest and most prominent unlicensed exchange.

“The fact that they did not obtain the license does not necessarily mean that they need to close all accounts they have for European customers,“ said Nina-Luisa Siedler, a lecturer at the Berlin University of Applied Sciences who advises companies on compliance with MiCA.

In a statement, Binance said it adheres to regulations in any jurisdiction where it operates, and that it is committed to doing business in the EU on a “long-term, compliant basis” under MiCA or otherwise.

“We are actively working toward becoming MiCA-authorised and view this as an important step in providing users with a consistent, regulated, and trusted service across the European market,” the company said.

Binance MiCA license Europe

For Binance, MiCA represents the latest in a series of regulatory and legal ordeals for a beleaguered crypto company.

The exchange agreed to a $4.3 billion settlement with the US government in 2023 as its co-founder, Changpeng Zhao reached a parallel settlement that involved a prison stint. He was pardoned last year by President Donald Trump.

Binance has tried to project that its regulatory woes are in the past, but new issues keep surfacing. That includes recent media reports that it helped funnel $1 billion to Iran, which the company has repeatedly denied. Then last month, Binance had to answer questions about police interactions with employees in the United Arab Emirates over issues involving a bank account it used to hold customer money.

Binance’s EU ouster was expected as a July 1 MiCA licensing deadline approached. The company had announced its intention to exit the bloc weeks earlier. However, behind the scenes, European Central Bank President Christine Lagarde personally intervened to ensure Binance’s application would not be approved, some of the people familiar with the matter said.

Under MiCA rules, national regulators are responsible for awarding EU-wide licenses.

Binance withdrew its application on June 16, the day before the Hellenic Capital Market Commission planned to discuss it at a board meeting and “therefore, no decision was made by the HCMC board,” the Commission said in a statement.

The ECB declined to comment.

The European Securities and Markets Authority, which oversees the implementation of MiCA across the EU, recently sent a letter to Binance seeking confirmation that it’s winding down its business there appropriately, according to some of the people.

An ESMA spokesperson said it doesn’t comment on specific firms, but that national regulators are responsible for sanctions over non-compliance.

Orderly Unwind

Through all of the regulatory and legal hurdles, Binance has nonetheless remained the No. 1 global crypto exchange. Some data points suggest its position hasn’t changed much in the EU, even after MiCA implementation.

Binance accounted for more than 45% of trading volume in spot crypto globally as of late August, according to data from the crypto research firm Kaiko. Its market share in euro-denominated trades — which doesn’t capture all activity happening in Europe — ranged from 3% to 4% during that time frame, not meaningfully different than before the July 1 MiCA deadline.

Binance also remains one of the most downloaded crypto trading platforms in the EU through Apple’s App Store in a manner that has not changed much in past months.

One challenge EU regulators face in truly ejecting non-licensed crypto firms is the risk of leaving their customers in the dust.

In the six countries where Binance had local entities — France, Spain, Italy, Poland, Sweden, Lithuania — Binance sent multiple emails to customers asking them to leave the exchange, according to some of the people. Those customers have mostly only been allowed to withdraw funds and not actively trade, though some have been allowed back onto the exchange through the reverse-solicitation workaround.

Binance had been planning to apply for a MiCA license with a member state other than Greece, but it’s unclear where the exchange might do so.