Binance's Singapore crypto hub plans in regulatory limbo

Singapore

BINANCE may be the largest cryptocurrency exchange in the world, but its plans to cement its place in Singapore may be a tough sell for a tough regulator.

The crypto company is waiting on the sidelines for its local arm to clinch a permit to operate in the city-state, even as smaller operators get the go-ahead.

While its licence application is still under review by the Monetary Authority of Singapore (MAS), Binance has hinted that it might withdraw its application and turn elsewhere in its hunt for a global base, people familiar with the matter said.

The withdrawal is dependent on whether the regulator's stance changes, one of the people said, asking for anonymity as the matter is private. Binance should reach a decision by the end of the year and an announcement is expected soon.

If its local affiliate pulls out, Singapore users will no longer be legally allowed to buy and trade cryptocurrencies through both Binance Singapore and Binance.com.

Key operations would also be moved closer to its global headquarters, a location that the company has been keeping coy about.

Binance's chief executive and co-founder Changpeng "CZ" Zhao on Wednesday (Dec 1) declined to comment on the status of its local unit's licence application, only saying that it was "in the process".

Binance's latest overtures mark a sharp turn in its strategy to pursue Singapore as a key hub for its global operations. The city-state, along with France and Dubai, was perceived to be a frontrunner in Binance's hunt for a home base amid efforts to build legitimacy.

Zhao's decision on a headquarters destination will likely depend on how 'pro-crypto' a country's watchdogs are. Many regulators only have "one metric" - to reduce risk, Zhao told The Business Times on Wednesday, saying he was at an airport in Europe.

"When (regulators) only go by that metric, they just shut everything down, and yes that's the best way to reduce risk. But better regulators have 2 metrics - they want to encourage innovation or economic growth and reduce risk. Regulators usually make rules that are much more pro-business when they look at both these metrics," said Zhao, who is also Binance's biggest shareholder.

While Binance has an office in Singapore, where Zhao has been based for two years, he also recently bought a house in Dubai and spent two weeks in France, hinting at a possible Europe and Middle Eastern push. The cryptocurrency exchange is set to announce its decision for a global home soon, according to several reports by Bloomberg.

Binance claims it processes US$170 billion worth of trades for cryptocurrencies each day. Its flight from Singapore could put a dent in the city-state's plans to position itself as a key player in the crypto arena.

"It is likely that once CZ leaves Singapore, the entire ecosystem leaves with him," one of the people close to the matter said.

While Singapore is widely seen to be a "crypto-forward" market, MAS is known to be a tough, careful regulator. MAS managing director Ravi Menon has said the central bank is putting in place "strong regulation" so only firms that meet its standards and address risks can operate. It is aiming to strike a balance between maintaining high standards and being open and nimble enough to attract players in the digital asset arms race.

MAS in September put Binance's global entity, Binance.com, on its investor alert list. The company's local arm - Binance Asia Services - was left to apply for a licence to operate in the city-state.

Binance Asia Services is among 70 firms still waiting for a green light from the MAS to operate in Singapore under its Payments Services Act.

So far, 4 firms have been awarded the crypto licence, including the brokerage arm of DBS Bank and Triple A, which has a tie-up with Grab.

Binance, founded in 2017, has had its run-ins with regulators across the globe who frown upon the illicit activity that has thrived in the largely unregulated crypto market. Ties to an established financial hub like Singapore would lend credibility - perhaps more so than in a lighter-touch jurisdiction - to Binance. In August, it named former Singapore Exchange chief regulatory officer Richard Teng as its Singapore CEO.

Zhao started Binance in China but pulled out shortly after Beijing banned crypto exchanges. It then established a number of offices in other states, including Singapore.

More recently, in June, Binance was booted out of the UK after Britain's financial watchdog stopped its local arm from undertaking any regulated activity. The regulator took a stern view of what the Financial Times (FT) described as "Binance's aloofness" and reluctance to comply with disclosure requirements.

Binance has also been in talks with various sovereign wealth funds about them taking a stake in the company, FT reported last week. It is likely that the investments would be closely tied to where Binance settles in for a home.

The search for strategic investors comes as Zhao seeks to improve its relationship with various governments. Singapore's GIC and Temasek could be possible contenders, considering previous investments in crypto exchanges like FTX. Binance's Singapore business has also been backed by Temasek-linked Vertex Ventures.

- with assistance from Claudia Chong, Benjamin Cher and Kelly Ng