EU Authorities Investigate Binance's MiCA Licensing Loophole Utilization: Report
Binance faces investigation from European Union authorities over its reliance on a MiCA regulatory exemption for customer services while ESMA pursues enhanced enforcement capabilities.
Authorities across Europe are reportedly investigating Binance's reliance on a regulatory loophole that enables the exchange to maintain service offerings to European Union customers despite lacking proper authorization under the region's cryptocurrency regulatory framework.
According to a Thursday report from the Financial Times, the European Securities and Markets Authority (ESMA) alongside regulatory bodies in France, Germany and Greece are investigating how Binance utilizes reverse solicitation provisions within the Markets in Crypto-Assets Regulation (MiCA).
In June, Binance withdrew its application for MiCA authorization in Greece, announcing plans to pursue regulatory approval in a different EU member state instead.
When contacted by Cointelegraph on Sept. 18, Binance stated it is actively pursuing MiCA authorization and maintains its dedication to conducting long-term compliant operations throughout Europe.
Reverse solicitation under scrutiny
According to the report, which cited an individual with knowledge of the situation, Binance has been leveraging reverse solicitation provisions to maintain service availability for certain EU customers.
This regulatory exemption permits crypto asset service providers (CASPs) based outside the EU to offer services to customers who contact them completely of their own volition, though ESMA's guidelines emphasize that firms must not exploit this provision to evade MiCA compliance obligations.
Prior to MiCA's transitional period concluding on July 1, Binance informed Cointelegraph that EU market access would be determined in part by factors including a user's location, their account standing and which "servicing entity" handles their business. The FT report indicates that certain EU traders now receive services through Binance's regulatory entity based in Abu Dhabi.
When asked to confirm ongoing discussions with EU regulatory authorities, Binance declined, instead telling Cointelegraph that the company "complies with applicable regulatory requirements."
ESMA pushes for stronger enforcement powers
On Wednesday, ESMA issued a call for expanded authority over companies based outside the EU that market their services to European investors while lacking MiCA authorization, making this request as part of its submission to the European Commission's consultation on revising the regulation.
According to ESMA, these proposed changes would enable quicker, more uniform supervisory measures throughout the EU while limiting opportunities for firms to take advantage of inconsistencies between different regulatory jurisdictions.
This initiative comes after ESMA Chair Verena Ross stated on Monday that the authority's MiCA priorities have transitioned "from rulemaking towards supervision and convergence."
Binance absent from ESMA's non-compliant list
The number of entries in ESMA's register documenting non-compliant cryptocurrency service providers increased from 164 on July 16 to 173 in the Sept. 30 update.
The most recent register does not include Binance, though MiCA characterizes this list as "non-exhaustive" and ESMA continuously updates it using information received from national regulatory authorities and additional sources.
Germany's Federal Financial Supervisory Authority (BaFin) refused to offer additional details, referencing legal requirements regarding confidentiality. Neither ESMA nor the regulatory watchdogs in France and Greece had provided responses before publication.