Binance Urges Prime Brokers to Enhance KYC to Avoid U.S. Investors

Binance reportedly urged prime brokers like FalconX and Hidden Road to enhance their KYC processes to prevent U.S. investors from accessing its platform, according to a March 19 report by Bloomberg citing insider sources.

The ongoing presence of U.S. nationals on the platform has been a contentious issue for authorities, as officially, they are banned.

Binance Urges Prime Brokers to Heighten KYC to Block U.S. Investors

Prime brokers serve as intermediaries between institutional investors and the market, offering services such as custody, trade execution, risk management, and lending.

Binance has mandated prime brokers like FalconX and Hidden Road to gather comprehensive KYC information from clients, including the geographic locations of their offices, founders, and employees. Additionally, clients are required to have this information verified to ensure its accuracy.

A Binance spokesperson emphasized the exchange’s dedication to compliance and transparency in response to inquiries. By openly disclosing its standards for assessing end users who access its platform, Binance is looking to provide clarity to enterprises seeking access to its robust liquidity offerings, they said.

Binance asks prime brokers to tighten KYC to block US nationals
According to Bloomberg, Binance is now requiring major brokers to enhance their KYC to prevent US https://t.co/hoMOuVusA9 is reported that after Binance admitted to violating sanctions and remittance laws and settled…

— DexBot (@dexbot) March 19, 2024

Recent court documents revealed that Binance’s rapid growth was largely driven by U.S. customers, despite the exchange’s lack of registration as a U.S. business, however. 

Former CEO Changpeng “CZ” Zhao and other officials were found to have encouraged high-value U.S. clients to obscure their connections to the U.S. using methods such as VPNs and APIs to access the exchange, according to reports.

The Justice Department also mentioned that Binance employees actively contacted VIP clients in the United States, urging them to provide information indicating that they were not situated within the United States.

Stricter Due Diligence Measures Implemented by Binance Following U.S. Settlement

The push for enhanced KYC procedures began around the time Binance pleaded guilty to charges brought by U.S. authorities in November. Since the plea, Binance has publicly disclosed its assessment criteria for end users accessing its platform.

In November, Binance and its former CEO, Changpeng Zhao, admitted to violating the Bank Secrecy Act and agreed to a $4.3 billion settlement with the U.S. Department of Justice. The settlement addressed allegations of money laundering, fraud, and sanctions violations stemming from Binance’s targeting of U.S. customers while failing to comply with U.S. regulations.

Zhao stepped down as CEO as part of the plea deal, with Richard Teng taking over to rebuild the exchange’s reputation and market share, especially in the U.S. Following the guilty plea and subsequent enforcement actions, the exchange’s U.S. arm had to downsize, cutting over two-thirds of its staff due to a decline in revenue.

Binance Holdings Ltd. has also tightened requirements for listing new digital tokens to bolster investor protections on its platform. 

According to Bloomberg, crypto projects seeking to list tokens on Binance now face a substantially longer “cliff period” during which no coins can be sold. They must also set aside more coins for market makers and make a security deposit. These changes began taking effect late last year.

“Binance is fully committed to compliance and has made public how it assesses end users who can access the Binance platform,” Binance said in response to inquiries regarding stricter checks by prime brokers. “By making its standard transparent, Binance clarifies for enterprises who want to access its market-leading liquidity.”

Binance continues to maintain its position as the largest cryptocurrency exchange globally in terms of trading volume, according to data from CoinMarketCap.