Why Binance Is Abandoning Most of Europe

If recent headlines are taken at face value, it looks like Binance, the world’s largest crypto exchange, could be exiting Europe.

Meanwhile, a string of rejections from EU regulators and voluntary withdrawals from several other markets gives the impression that Binance might be running out of options in Europe as well.

But with the EU’s new Markets in Crypto Assets (MiCA) regulation coming in, the exchange may simply be – contrary to Warren Buffet’s mantra on investing –  putting all its eggs in one basket by focusing most or all of its efforts on compliance in fewer EU countries. And that just might be what it needs right now to succeed in Europe in the long term.

Companies looking to operate in Europe had to register or get licensed in each European jurisdiction, but that won’t be necessary when MiCA comes into effect in around 12 – 18 months.

“You have to apply for one license in one country. And then you get almost like a passport to provide your services across all 27 EU member states,” said Emilien Bernard-Alzias, partner at law firm Simmons & Simmons LLP.

Like other crypto exchanges, Binance also bet big on Europe, applying for licenses and registrations in several countries in an effort to serve as many markets as possible.

At press time, Binance was registered with regulators in France, Italy, Lithuania, Spain, Poland and Sweden, according to its website. Of those countries, where Binance chooses to focus its resources on to become MiCA compliant may matter – and the exchange says it will be flexible to become a regulated entity.

“MiCA is a pragmatic solution to the shared issues that the industry and regulators face together. It provides a clear route to compliant access to the single market for businesses while also providing strong guardrails that protect users while supporting innovation,” a spokesperson for Binance said in an emailed statement to CoinDesk. “With existing registrations in six EU countries, Binance stands ready to make any necessary changes to our business during the implementation period to fully comply with MiCA’s requirements.”

It matters which EU countries crypto exchanges seek approval in at this stage, because not all nations are equally ready to implement MiCA, Bernard-Alzias said.

Meanwhile, other jurisdictions like France and Germany have established more robust crypto licensing regimes that involve thorough examinations of the makeup and management of a business before approving registration or licenses.

According to Anika Patz, associated partner at law firm YPOG, crypto firms in general don’t get licenses easily in Germany thanks to a “diligent” regulator looking to avoid another scandal like FTX or Wirecard, where the payment processor committed accounting fraud to hide losses for at least five years until its insolvency in 2020.

Crypto custodians that wanted to operate in Germany had the chance to enter in a grandfathering period where the firms needed to apply for a license under the German Banking Act but were allowed to continue operating under a preliminary license. To obtain a license, providers have to build up their organization with “people on the ground,” including robust compliance and risk management teams as well as sufficient IT knowledge and infrastructure to prove to BaFin that the business is legitimate, according to Patz.

“If you propose a business where basically none of your infrastructure’s based in Europe … If you outsource all of your functions to third countries, and you have two people on the ground here [in Germany], [BaFin] cannot really say you are in charge of your business. And it will not provide your license,” Patz said.

Patz and Bernard-Alzias agree Germany has a complex licensing process for crypto firms compared to other EU member states – which is modeled after the EU’s Markets in Financial Instruments Directive (MiFID II) –  and crypto firms that are already licensed under the German regime will be able to transition smoothly into the MiCA regime. But Bernard-Alzias contends that the stringent regime might also be the reason there aren’t too many crypto firms based in Germany.

“If you are a MiFID firm, honestly, it’s quite easy for you to become a crypto asset service provider” under MiCA because Germany’s MiFID regime is “even more complicated” and for more complex firms, Bernard-Alzias said. “But the fact is there are not many crypto service providers in Germany because of that,” he added.

Although there’s no saying if or when Binance might finally win a French crypto license, given BaFin’s track record for approving crypto firms, France might be its likely path to MiCA compliance – and that may be the case for many companies looking to enter the single market.