Compliance 'Is a Journey' for Binance, But It Doesn't Have to Be While Binance makes strides to improve its compliance, other prominent crypto companies and startups have proven that crypto can follow regulation from the get-go.

By Farhana Rahman

Opinions expressed by Entrepreneur contributors are their own.

In the wake of a massive crackdown from regulators, Binance is shifting its strategy. The world's largest crypto exchange by trading volume was altogether banned from carrying out regulated activity in the U.K. Following the company's inability to meet the UK's anti-laundering requirements, the country even ordered Binance to place a caution on its website for U.K. users warning them that they are not permitted to carry out any regulated activity in the U.K.

Other countries are following suit — Japan, Canada and Thailand all issued warnings to Binance that it is operating in the country without authorization or that the company has failed to comply with local regulations.

In response, Binance CEO, Changpeng Zhao, wrote a blog post explaining the company hasn't always gotten everything right and that "compliance is a journey — especially in new sectors like crypto." While his reasoning may be justified in that compliance is a constant struggle, most prominent U.S. crypto companies have done a relatively stellar job of complying with regulation from the get-go.

Related: Tesla CEO Elon Musk Says Bitcoin Purchase Is "Less Dumb" Than Holding Cash

So is compliance a journey?

When Binance came onto the scene in 2017, the key to its success was the company's willingness to take on any token under the sun. While this positioned Binance as a dominant crypto player — the biggest exchange on the market — the approach was also inherently far riskier. Now that the massive exchange has attracted enough attention for its regulatory problems, the company is trying to transition to a legitimate buttoned-up company.

And this has been the case for many crypto and blockchain companies that have been around since the early days of the technology, back when regulation was a dirty word in the space. The difference, however, is that Binance wasn't one of the OGs, having only debuted in 2017. Compliance should have been central to the strategy.

Other crypto giants, however, have made compliance a top priority since their inception. Coinbase postured far more conservatively since its founding in 2012, taking fewer compliance risks and constantly working to adhere to securities laws. The exchange platform has made compliance a part of its function, working closely with regulators and even dedicating large portions of its staff specifically to solving regulation issues.

In addition to the recent regulatory crackdown, Binance is also facing competitive pressure from newer crypto exchanges that may have a more sophisticated compliance strategy. Mega exchange FTX was founded in 2019 and has already closed a $900 million series B round, reaching a $18 billion valuation. The company plans to expand its U.S. presence via its regulatory-compliant U.S. subsidiary. FTX's CEO, Sam Bankman-Fried, said publicly that the new funds will be specifically used to ensure regulatory compliance as FTX.US looks to get licensed where it can.

FTX has also done a better job of legitimizing its brand in the public eye. The company recently closed a $135 million deal to rename Miami Heat's stadium, formerly known as American Airlines Arena. The exchange also recently signed a sponsorship deal with Major League Baseball and was even able to onboard National Football League star Tom Brady as an FTX "ambassador" in exchange for company equity. The company's public standing and its commitment to regulation further elevate pressure on less compliant crypto companies, such as Binance.

Related: Binance, World's Biggest Crypto Exchange, Banned from the U.K.

Current crypto's compliance approach

Other crypto startups are also taking a more moderated compliance approach, exemplifying how crypto corporations abide by regulations. Despite the wild-west nature of the emerging DeFi ecosystem, DeFi trading wallet Dharma stringently verifies the identities of users of its fiat onramp and offramp products, as is required of them as a federally registered money-services business.

According to Dharma CEO and Co-Founder Nadav Hollander, "If you're sitting at the intersection of traditional finance and DeFi, pursuing the compliant route is a strategic advantage that pays dividends in countless ways." Regarding the startup's own compliance journey, Hollander explains "It's early in the space and the regulatory guidance is not perfectly clear, but we try to follow it to the letter where possible and in spirit where not."

Banxa, a fiat-to-crypto gateway solution, makes it a point to abide by all domestic and international regulations required by law, including Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures. Other platforms and exchanges looking to expand beyond the crypto diehards are taking similar measures, a step away from the anonymous decentralization of exchanges like Uniswap, which doesn't require any kind of KYC. In an emerging industry that still walks the tightrope between security and extreme risk, such companies choose to cover their bases while also empowering crypto investors and traders to enjoy the advantages of blockchain and digital assets.

Even before the Binance debacle, regulatory compliance has become a key selling point for crypto startups and digital assets exchanges. Even the language used by fully compliant companies differs from branding in the pre-ICO boom era (digital assets versus crypto, for example), and some players in the space are really going all out. Global financial-services platform Everest aims to build an entire blockchain ecosystem compatible with every aspect of the industry — from investing in digital assets to providing blockchain-based digital identity. With such an onerous undertaking, the company has ensured every aspect of its platform is compliant from the get-go, with full adherence to Financial Action Task Force (FATF) guidelines and MFSA authorization for its programmable stablecoin. Everest will even be able to comply with the proposed U.S. regulations.

Binance CEO Zhao's recent comments on compliance indicate that Binance is making changes to its regulation strategy. In May, the company hired Brian Brooks as Binance.US's CEO. Brooks was previously chief legal officer at Coinbase and eventually became acting comptroller of the currency under the Trump Administration, essentially serving as the top banking regulator in the U.S. With this shift in leadership, Binance is signaling that it wants to legitimize its brand.

Related: Does Elon Musk Have a New Enemy? Binance CEO Taunts Musk Over Tesla Bitcoins

Brooks even recently hired another ex-regulator, Manuel Alvarez, as its chief administrative officer. The Binance.US CEO stated the new hire "shows not only do we take this seriously, but we're not going to be defensive about compliance and consumer protection, We're going to be on the front foot." The company is also responding to the U.K. ban by hiring the "UK version of Brian Brooks" to face regulation compliance problems head on. Despite pressure from crypto true believers to not "sell out," crypto startups and exchanges will have to adapt to the evolving crypto market and emphasize regulatory compliance.

Binance is proving that for such companies, compliance is in fact a journey, and one that the company is taking on full steam. Yet other crypto companies, both massive exchanges and promising startups, prove that complying with regulations is possible and strengthens the company's positioning in the long-run. For these crypto companies, compliance has been a journey, just one they were on from day one.

Wavy Line
Farhana Rahman

Entrepreneur Leadership Network Contributor

Digital Marketer for Tech Startups

Farhana Rahman has represented tech startups for over 10 years as a PR and digital marketing professional. She's passionate about individuals, companies and trends that are well on their way towards disrupting industries, and offers approachable actionable insights on how to stay ahead of the curve.

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