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The Core Issue of 2023: Safety and Compliance
Binance Invests $200 Million for Compliance in 2023
Embracing Compliance to Create the Future of the Industry
A New Year, a New Binance
Another year has passed in the blink of an eye. Looking back at the industry environment of the past year, due to a series of black swan events involving crypto companies such as FTX, Celsius, and 3AC since 2022, last year became the “regulatory year” for the cryptocurrency market. Regulatory authorities around the world tightened their legal norms for relevant crypto companies, and as a result, the operations of these entities faced severe regulatory challenges globally.
Especially under the leadership of Gary Gensler, the U.S. Securities and Exchange Commission (SEC) took aggressive enforcement actions against exchanges and crypto service providers, including Kraken and Coinbase, throughout the year despite the unclear regulatory framework in the United States. In such an environment, crypto entities striving for long-term operation must invest significant resources in compliance to cope with the tightening global regulatory trends. The content presented in Binance’s recent “2023 Year-End Report” reflects this long-term strategic planning and actions.
According to the report, investment in compliance has been one of Binance’s core focuses in 2023. Over the past year, the funds allocated by Binance for compliance have increased significantly from $158 million in 2022 to $213 million, a growth rate of 35%.
We speculate that these increased compliance budgets are mainly allocated to several aspects:
1. Impact of Compliance Regulatory Trends
As the global cryptocurrency market continues to grow, governments and regulatory bodies around the world have strengthened their supervision of crypto exchanges. This trend will continue to heat up in 2023 and is likely to extend into 2024. As a global exchange, Binance must actively respond to ever-changing compliance regulations to ensure the continuity of its operations and meet regulatory requirements. Therefore, increasing the compliance budget can be seen as a strategic move to avoid potential legal risks and enhance their competitive advantage in the business sector.
2. Optimization of KYC/AML Processes
In terms of compliance, KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures are vital for a financial institution’s regulatory compliance. Through continuous optimization, it can be expected that Binance will ensure higher security and effectiveness. This may include additional levels of identity verification, real-time transaction monitoring, and risk assessments to prevent any illicit activities and ensure that the platform is not exploited for illegal purposes.
3. Enhancement of Market Transparency
In the compliance process, Binance may seek to improve market transparency to establish higher trust. This can be achieved through public reporting on compliance, transparency in transaction data, and active cooperation with regulatory bodies. These measures will attract more institutional investors and large corporations, further promoting the maturity of the cryptocurrency market and fostering more potential collaborations and innovations.
4. Strengthening Information Security
As the scope of business expands, Binance has invested significant resources in constructing security measures for its platform to maintain a secure environment for users’ digital assets and data. Currently, Binance has obtained ISO 27001 and ISO 27701 certifications for information security governance and privacy information management in four jurisdictions: France, the United Arab Emirates, Bahrain, and Turkey. It has also completed the SOC 2® Type II audit by external auditing firm A-LIGN. A-LIGN, a technology-driven security and compliance management partner, helps mitigate cybersecurity risks and is trusted by over 4,000 global organizations.
5. International Cooperation
Compliance is not limited to a single country but requires global collaboration. By actively participating and deepening cooperation with regulatory bodies in various countries, Binance can exert its industry influence and assist in the positive development of the crypto industry. This includes working with other crypto companies, financial institutions, and government agencies to jointly establish industry standards and deepen cooperation with law enforcement agencies to combat financial crimes.
In summary, Binance’s move to increase the compliance budget in 2023 is a wise decision that helps ensure the sustainability and compliance of its business. As the cryptocurrency market continues to evolve and regulatory environments change, compliance will continue to be a key focus in the industry, requiring continuous resource investment to address challenges and opportunities.
On the other hand, compliance is crucial for building trust among industries, regulatory bodies, and customers. Maintaining high compliance standards not only helps expand global business but also becomes a competitive advantage for crypto entities. Taking Binance as an example, the exchange has obtained operating licenses, registrations, and authorizations in 18 jurisdictions worldwide, including France, Italy, and Japan, among G7 countries, marking the highest number of licenses ever achieved. This undoubtedly highlights the key factor that has earned Binance users’ trust.
Binance’s global operating licenses and registrations enable it to expand into different jurisdictions, not only broadening its user base but also reducing geographic risks. This also contributes to diversifying business by providing various products and services based on different regional demands while complying with local regulatory requirements. This global presence helps Binance maintain its market leadership.
Having the highest number of licenses represents Binance’s competitive advantage in the market, allowing it to offer a wider range of services and attract more institutional investors and retail users.
Furthermore, by the end of 2023, Binance’s compliance team had responded to 58,000 enforcement requests and detected billions of dollars in illegal funds. This number represents Binance’s crucial involvement in combating financial crimes globally and demonstrates its commitment to protecting users, contributing to the security of the crypto ecosystem.
At the same time, Binance has collaborated with law enforcement agencies in Taiwan, Hong Kong, South Korea, Australia, and other regions, providing up to 120 educational training sessions for global law enforcement officers. This international cooperation and knowledge sharing help combat transnational financial crimes and enhance the security of the global financial system. For example, in 2023, Binance collaborated with the Criminal Investigation Bureau, High Prosecutor’s Office, and multiple local prosecutor’s offices in Taiwan to organize a series of educational training activities. Binance’s team shared the latest trends in crypto assets and investigation techniques, helping over 100 Taiwanese law enforcement officers enhance their understanding of crypto assets and strengthen their investigative skills.
More of such international cooperation not only provides law enforcement officers with professional knowledge but also promotes in-depth communication between the public and private sectors, setting a good example for the industry. It also helps combat illegal activities related to cryptocurrencies, benefiting the long-term development of the entire crypto ecosystem with numerous advantages and no harm.
Binance actively launched multiple new products and services last year, including copy trading functionality and the Web3 wallet, to drive innovation in the industry. These initiatives undoubtedly injected new vitality into the cryptocurrency industry, demonstrating Binance’s profound understanding of technological advancements and user needs.
However, from the above content, it is clear that even while pursuing innovation, Binance still places “compliance” at the core of its business development. This persistence not only reflects Binance’s long-term strategic planning for global business development but also embodies its continuous commitment to ensuring the security, compliance, and transparency of the cryptocurrency ecosystem.
Looking back at the changes in the overall cryptocurrency market in 2023, including various exchanges, including Binance, experienced significant ups and downs. However, in the end, Binance reached settlement agreements with regulatory authorities in the United States, taking responsibility for past actions and making a fresh start. With Richard Teng, an experienced compliance professional, taking over as CEO, we can expect to see a Binance that is completely different from before. As Richard stated in his year-end open letter
