EU Regulators Probe Binance Over Unlicensed Operations

EU regulators have launched an investigation into Binance Holdings Ltd.'s unlicensed operations in Europe, focusing on whether the company relies on a narrow legal exemption to serve customers across the bloc.

The inquiry involves several European authorities, including the European Securities and Markets Authority (ESMA) and regulatory bodies from France, Germany, and Greece. They are examining whether Binance Holdings Ltd. has kept providing services to EU customers without holding a license under the Markets in Crypto-Assets framework, known as MiCA.

At the center of the inquiry is Article 61 of MiCA, which sets out what is known as the 'reverse solicitation' exemption. This exception lets firms based outside the EU serve clients who seek them out on their own initiative, but regulators are now probing whether Binance's reliance on this exemption holds up.

Regulators have pointed to a withdrawn application by Binance for a MiCA license in Greece and a missed deadline to wind down operations in the EU. The exchange had restricted new client onboarding and limited certain services for users across various EU member states, but claims it is working toward obtaining MiCA authorization.

Binance has faced similar concerns about its money laundering controls in the US, where it was hit with a $4.3 billion fine in 2023 tied to anti-money laundering violations. A finding against Binance could influence enforcement actions against other unlicensed platforms operating in the EU and raise compliance costs for exchanges serving the region.

Several key factors will determine the outcome of this inquiry, including whether ESMA formalizes its narrow reading of reverse solicitation in a way that applies across member states, whether France, Germany or Greece moves from questions to formal enforcement, and whether Binance files a new MiCA application.