The U.S. partner of global cryptocurrency exchange Binance has confirmed that a trading firm managed by Binance CEO Changpeng Zhao operated as a market maker on its platform. According to sources, Binance had secret access to a bank account belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to the trading firm, Merit Peak Ltd.
In an interview with The Wall Street Journal, Binance CSO Patrick Hillman highlighted the exchange’s shortcomings in regulatory compliance. He explained that the shortcomings mainly occurred during the implementation of the exchange’s security measures. They concerned rules related to the Know Your Customer (KYC) protocol and Anti-Money Laundering (AML).
The CSO confirmed that Binance has already fixed the bugs in its logs and security of its employees. He noted that such issues were at the forefront two years after the platform’s launch. But Binance has upgraded its functionalities to meet its global growth plans.
Hillmann explained that some shortcomings stemmed from a lack of staff to oversee compliance and cybersecurity while maintaining expansion activities. But the CSO reported that they made all the necessary adjustments by increasing the number of people in their compliance team.
Binance transferred over $400 million from the account at California-based Silvergate Bank to Merit Peak between January and March 2021, The New York Times reported. Before that story’s publication, Binance.US had told The New York Times that “Merit Peak is neither trading nor providing any kind of services on the Binance.US platform,” without giving further details.
Binance.US’s executives were concerned by the outflows from the Silvergate account to Merit Peak because the transfers were taking place without their knowledge. A spokesperson for the global Binance exchange, which did not respond to The New York Times’ questions for the article on Thursday, told crypto news outlet CoinDesk that the transfers were “a Binance.US issue.”
The activities of crypto platforms’ market makers – firms that typically buy and sell assets at exchanges to deepen trading volumes – have come under growing scrutiny from U.S. financial regulators since the collapse of major exchange FTX in November.
The CSO mentioned that he would keep the details of the discussion between Binance and the regulators private. However, the regulators would decide what they intend to do. They could slam the exchange with a penalty fine or a huge price payment as remediation.
Also, Hillmann noted that Binance is making great efforts to ensure that the outcome would not affect users but benefits them. He reported that the exchange wants to clear all regulatory ambiguity and forge ahead, concentrating more on its business.
In another development, CNBC reported that the New York Department of Financial Service cracked down on Paxos, the issuer of gave Binance USD tokens. NYDFS ordered Paxos to stop issuing new BUSD tokens. The blockchain firm confirmed that it would stop minting new BUSD tokens but will still manage the redemption of the stablecoin from customers
