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

EU Regulators Scrutinize Binance Over Legal Exemption and MiCA Compliance

Binance Faces Regulatory Challenges in the European Union

Background: Binance's Position in the EU Market

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

MiCA Regulations and Licensing Requirements

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

Regulatory Scrutiny Over Reverse Solicitation

ESMA's Concerns and Statements

The European Securities and Markets Authority (ESMA) 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.

Clarification on the Reverse Solicitation 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

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's Response and Ongoing Developments

"We are actively working toward becoming MiCA-authorised," the company told the newspaper, adding that it "complies with applicable regulatory requirements in the jurisdictions in which it operates."

Reuters could not immediately verify the report. Binance and the ESMA did not immediately respond to a Reuters request for comment.

(Reporting by Rhea Rose Abraham in Bengaluru; Editing by Varun H K and Priyanka G)