The Binance case: what we learned from the suspension of withdrawals and redemptions in reais – Opinion

Customers of Binance, the cryptocurrency exchange with the largest market volume in Brazil and in the world according to some estimates, have not been able to redeem or deposit amounts in reais for more than a week, forcing users to seek alternative solutions.

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The case is an example of what I pointed out, back in April, in a conversation on InfoMoney’s Cripto+ program: users are subject to the impediment of redemptions in reais due to non-compliance with Central Bank rules by some exchanges and their partners, as has already occurred in UK.

The topic should be analyzed in the context of withdrawal interruptions at companies such as Celsius, Babel, Voyager, and Finblox, given the recent devaluation of crypto assets and speculation that losses caused by the misuse of customer funds may be the cause. of the suspension of service. However, we need to understand the peculiarities of each case to avoid panic and misinformation.

The episode brings a warning to investors: it is necessary to know the mechanisms for depositing and redeeming reais on exchanges, as transactions with Brazilian currency can be interrupted in the face of problems with the local partner or with Bacen.

Why were operations with reais interrupted?

These risks already exist, even before the enactment of the law on virtual assets currently being processed by the National Congress, as the rules for the prevention of money laundering already apply to banks, finance companies and payment institutions.

Any exchange that allows transactions in reais must have access to the Brazilian payment system via an institution authorized by the BC, maintaining bank or payment accounts.

To transfer reais to an exchange, a TED or Pix must be made to an account of a branch or local partner in a regulated institution, for which the regulator requires a series of registration information and routines for supervision and communication of suspicious transactions. money laundering authorities.

If the foreign exchange does not collect this data from its customers or does not want to share it with the local partner, the latter may be subject to action by the Central Bank, which will require information on the effectiveness of its internal controls and compliance with legislation.

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Faced with an inspection, the regulated institution that serves the exchange has two options: obtain the information and adapt its policies and routines to continue providing the service or interrupt it if it does not enter into an agreement with the exchange.

According to information released by the press, the interruption of operations with reais on Binance was due to the second option, given the refusal, by the exchange, to provide data from its Brazilian customers to fulfill the regulatory duty of KYC (Know Your Client), resulting in the end of the partnership with Capitual, which operates in the country without authorization from the BC (although it uses the name “Banco Capitual”).

Controversy over money laundering

The topic is delicate because Binance was involved in a recent discussion about being a pole of attraction for money laundering, due to an investigative report made by Reuters, the content of which was denied by the exchange.

Binance was the subject of investigations and restrictions on its operations in several countries (United States, United Kingdom, China, Japan, Malaysia, Canada, Singapore and Turkey) and was accused of having ineffective compliance controls, improperly using customer data and disclosed false information to investors.

Publicly, the exchange has stated that it intends to comply with existing regulation, by approaching the authorities and disclosing obtaining authorizations in France, Italy and the United Arab Emirates. However, a closer look at the scope of these authorizations and episodes such as the one commented here suggest that discourse and practice may be out of step.

It is unclear as to the real reason for the breakup of the Binance-Capitual partnership. There are rumors about the search for better commercial terms with another partner, competitive strategies (Capitual provides services to other exchanges), disagreement regarding compliance with regulatory requirements and data sharing or, simply, an attempt by the exchange to curb withdrawals in a moment of greatest uncertainty in the market.

lessons learned

Last week, Binance announced a new partnership with Latam Gateway to resume trading with reais. The company does not yet have authorization from the Central Bank, but it can carry out the activity of issuing electronic money, as it already provides this service before March 1, 2021, when BCB Resolution No. until December 2022, all companies must apply for authorization.

Until Latam Gateway is authorized, I think the company will be operating in a gray area. But, from the outset, Brazilian authorities will need to be sure that the obligations to collect customer data and report suspicious transactions will be complied with.

It remains to be seen, therefore, whether the BC will inspect Latam Gateway to verify any non-compliance with current regulations, given the volume of transactions and customer balances, which may lead to new suspensions of operations with reais. We wait for the next chapters.

How far will cryptocurrencies go? What’s the best way to buy them? We have prepared a free class with step by step. Click here to watch and receive InfoMoney’s cryptocurrency newsletter