Those familiar with the cryptocurrency scene in Malaysia would have definitely heard of Binance – the world’s largest cryptocurrency exchange by trading volume (source:coinmarketcap.com) which all this while, has been unlicensed and unregulated in Malaysia. On 30.07.2021, the Securities Commission Malaysia (“SC”) announced that it will be taking enforcement actions against Binance for illegally operating a Digital Asset Exchange (“DAX”) in Malaysia. Under Sections 7(1) and 34(1) of the Capital Markets and Services Act 2007, all DAX operators must be registered as a Recognised Market Operator (“RMO”) by the SC. Violators may be liable to a fine of not exceeding RM10milion or imprisonment for not more than 10 years, or both. This doesn’t come as a shock as Binance has been on the SC’s Investor Alert List since July 2020.
Pursuant to Section 354(3) of the CMSA, a public reprimand has been issued by the SC to Binance. This reprimand was issued against the Cayman Islands-registered Binance Holdings Ltd., and its 3 other Binance entities – namely Binance Digital Ltd. (registered in the UK), Binance UAB (registered in Lithuania), and Binance Asia Services Pte. Ltd. (registered in Singapore).
All four Binance entities have been ordered by the SC to:
- disable the Binance website (www.binance.com) and mobile applications in Malaysia within 14 business days from 26 July 2021 (being 16 August 2021);
- immediately cease all media and marketing activities, including circulating, publishing or sending any advertisements and/or other marketing material, whether via emails or otherwise, to Malaysian investors; and
- immediately restrict Malaysian investors from accessing Binance’s Telegram group.
The CEO of Binance Holdings Limited, Zhao Changpeng, has also been specifically ordered to ensure that the above directives are carried out.
The SC has also taken this chance to urge those who currently have accounts with Binance to immediately cease trading through its platforms and to withdraw all their investments immediately. Investors are also advised to stop dealing with and investing through illegal DAX. At present, there are 4 licensed DAX in Malaysia, which are, Luno, Sinegy, Tokenize and MX Global. As for the cryptocurrencies allowed to be traded, they are, Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC) and Bitcoin Cash. (“Allowed Cryptocurrencies”)
On 13 August 2021, Binance had issued an official statement titled “Restricting of Product Offerings in Malaysia” on its platform, binance.com, in response to the SC’s actions. In compliance, Binance had announced that it will cease the following products and offerings in Malaysia on 16 August 2021 at 12:00PM UTC+8 i.e. MYR trading pairs, MYR payment options and P2P merchant applications.
On an even shorter notice, Binance P2P will also remove MYR trading pairs on the day of the announcement itself and users were advised to complete all related P2P trades and remove related trade advertisements by 8:00PM to avoid any potential trading disputes before suspending its services by 9:00PM local time.
At the time of writing, the Binance app can no longer be found on both the Google Play Store and Apple App Store. The Binance website, www.binance.com can also no longer be accessed, that is, without a VPN at least. (Note: this is through the writer’s own efforts of checking, and this cannot be guaranteed for each individual as the site may still be accessible through a VPN or a change in DNS. Further Note: the terms below were extracted from a period of time where the writer still had access to the binance website)
A quick look at Binance’s Terms of Services (“Terms”) provides for situations where they have terminated their services to users, but none on ‘restrictions’ as per the title of their announcement. Examples of what Binance reserves the right to do in the event of termination is to permanently freeze authorisations of user’s accounts. This leaves room for uncertainty in relation to users who may not have had the time to manage and withdraw their investments before the restriction of services from Binance (for now).
Aggrieved users who wish to bring a claim against Binance are advised to contact Binance directly, as per their Terms. Those who wish to go ahead with any sort of legal claims are to set forth the basis of their claims in a “Notice of Claim” stating the (1) nature and basis of their claim (2) the specific relief sought (3) the original ticket number from their prior claim through customer service and (4) their Binance account email (“Notice”). This is to serve as a prior notice to Binance. All claims/disputes are also to be resolved through arbitration only.
Further, Binance has modified its terms of service, which now states that new users registering for a Binance account have to represent and warrant that they are not a Malaysian user, nor are they acting on behalf of a Malaysian user.
Separately, Binance is currently facing intense scrutiny from regulators all around the world over its trading services. The cryptocurrency exchange platform which was originally founded in China have had warnings issued to it from countries ranging from Italy, Hong Kong, Germany, the United Kingdom (“UK”), the United States, and several others, with Malaysia joining suit most recently. In the UK, the Financial Conduct Authority (“FCA”) – the UK’s financial regulator, banned Binance Financial Markets (the U.K subsidiary of Binance Group) from undertaking any regulated activity in the UK.
Currently, it is still uncertain as to whether the SC may choose to impose further stringent measures against Binance, and the subsequent extent of its enforcement (if any). The difference between the situation here and in the UK is the fact that the FCA does not currently regulate cryptocurrency exchanges in the UK, whereas in Malaysia, cryptocurrency exchanges are regulated by the SC under the CMSA and the Digital Assets Guidelines. Despite the ban, trading in the UK can continue as normal. However, there have been reports of deposits and withdrawals in GBP being frozen through one of the country’s largest payment systems – “Faster Payments” within Binance, just 3 days after the ban. Coincidentally or not, this was due to Faster Payments ending its agreement with Binance, but there have been speculations of the freeze resulting from the payment system coming under the remit of the FCA. Regardless, several UK banks such as Barclays, HSBC, Santander and NatWest have since banned their customers from transferring funds to Binance.
There is still a lot of grey area in the regulation of cryptocurrency and its exchanges, especially in the midst of the worldwide crackdown on Binance. In the meantime, users may opt to move all of their investments to other licensed exchanges, withdraw their investments from Binance entirely, or simply leave their investments in Binance until Binance decides to apply for a license to operate legally in Malaysia.
Author: Catherine Loi ([email protected])