EU questions Binance over continued operations despite wind-down order, FT reports

EU Questions Binance on Legal Exemption for EU Operations After License Rejection

Regulatory Scrutiny of Binance's EU Operations

Oct 1 (Reuters) - EU officials are questioning Binance over its use of a legal exemption to continue serving customers in the region despite an order to wind down its business in the bloc, the Financial Times reported on Thursday, citing people familiar with the matter.

Binance's License Rejection and Impact

Binance, the world's largest cryptocurrency exchange, lost permission to offer services to European Union clients after its application under a new license regime was rejected earlier this year, threatening access for millions of users.

EU Crypto Regulations and Legal Exemptions

Markets in Crypto-Assets (MiCA) Rules

Under new EU rules, called Markets in Crypto-Assets, crypto companies were required to obtain a license by the end of June to continue operating across the bloc. Without a license, Binance would not qualify to continue operating in the EU from July.

Reverse Solicitation Exemption

The European Securities and Markets Authority and national regulators are looking into Binance's use of "reverse solicitation", a legal exemption allowing companies based outside the EU to provide financial services to customers in the bloc if those users seek the relationship entirely on their own initiative, the FT reported.

Regulators' Interpretation of the Exemption

“The reverse solicitation exemption should be understood as very narrowly framed. It should be regarded as the exception and not be used to circumvent MiCA requirements,” ESMA told the FT.

Potential Enforcement Actions and Binance's Response

Some regulators have requested information from the company and could take enforcement action, including imposing fines, if they are not satisfied with Binance's response, the report said.

"Binance complies with applicable regulatory requirements in the jurisdictions in which it operates," a spokesperson for the company told Reuters, adding that it was "actively working toward becoming MiCA-authorised."

The ESMA declined to comment.

(Reporting by Rhea Rose Abraham and Gargi Gupta in Bengaluru; Editing by Varun H K, Priyanka G and Mrigank Dhaniwala)