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Core Issues in 2023: Security and Compliance
Binance Invests $200 Million in Compliance for 2023
Embracing Compliance for a Collaborative Future
A New Year, a New Binance
Another year has passed in the blink of an eye. Looking back at the industry landscape of last year, it was dubbed the “year of regulation” in the cryptocurrency market due to a series of black swan events involving crypto companies such as FTX, Celsius, and 3AC since 2022. Regulatory authorities around the world tightened their legal frameworks for these crypto companies, posing significant challenges to their operations worldwide.
In particular, the U.S. Securities and Exchange Commission (SEC) under the leadership of Gary Gensler took tough enforcement actions against exchanges and cryptocurrency service providers, including Kraken and Coinbase, throughout the year despite unclear regulatory guidelines. In this environment, cryptocurrency entities aiming for long-term sustainability must invest substantial resources in compliance to address the tightening global regulatory trends. The recently released “2023 Year-End Report” by Binance Exchange exemplifies such strategic planning and actions.
According to the report, investment in compliance has been one of the core focuses for Binance Exchange in 2023. Over the past year, Binance’s investment in compliance has increased significantly from $158 million in 2022 to $213 million, representing a growth of 35%.
We speculate that this increased compliance budget has been allocated to several areas:
Impact of compliance regulatory trends
As the global cryptocurrency market continues to grow, governments and regulatory bodies worldwide have strengthened their oversight of cryptocurrency exchanges. This trend is expected to intensify in 2023 and possibly extend into 2024. As a global exchange, Binance must proactively adapt to evolving compliance requirements to ensure its business continuity and regulatory compliance. Therefore, increasing the compliance budget can be seen as a strategic move to avoid potential legal risks and enhance their competitive advantage in the market.
Optimization of KYC/AML processes
KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures are crucial for a financial institution’s legal compliance. Through continuous optimization, Binance can expect to ensure higher security and effectiveness. This may include additional levels of identity verification, real-time transaction monitoring, and risk assessments to prevent illicit activities and safeguard the platform from being exploited for illegal purposes.
Enhancement of market transparency
As part of the compliance process, Binance may seek to improve market transparency to establish higher trust. This can be achieved through publicly reporting compliance, transparency of transaction data, and active collaboration with regulatory authorities. These measures help attract more institutional investors and large corporations, further promoting the maturity of the cryptocurrency market and fostering potential collaborations and innovations.
Strengthening information security
With the expansion of its business scope, Binance has invested significant resources in constructing robust security measures 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 conducted by the 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.
International cooperation
Compliance is not limited to a single country but requires global collaboration. By actively participating in and deepening cooperation with regulatory authorities worldwide, Binance can leverage its industry influence to assist the positive development of the cryptocurrency industry. This includes working with other crypto companies, financial institutions, and government agencies to establish industry standards and deepen cooperation with law enforcement agencies to combat financial crimes.
In summary, Binance’s decision to increase its compliance budget in 2023 is a wise move that helps ensure the sustainability and compliance of its business. As the cryptocurrency market continues to evolve and regulatory environments change, compliance will remain a key focus of the industry, requiring continuous investment of resources to address challenges and opportunities.
On the other hand, compliance is essential for building trust among the industry, regulatory bodies, and customers. Maintaining high compliance standards not only contributes to the global expansion of business but also becomes a competitive advantage for cryptocurrency entities. Taking Binance as an example, the exchange has obtained operational licenses, registrations, and authorizations in 18 jurisdictions worldwide, including G7 countries such as France, Italy, and Japan. This sets a record for the highest number of licenses ever obtained and undoubtedly demonstrates the key factor behind Binance’s ability to gain user trust.
Binance’s global operational licenses and registrations enable expansion into different jurisdictions, not only broadening its user base but also reducing geographical risks. This also facilitates business diversification by providing various products and services based on regional demands and complying with local regulatory frameworks. This global presence helps Binance maintain its market leadership.
Having the highest number of licenses represents a competitive advantage for Binance Exchange 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 a total of 58,000 enforcement requests and uncovered billions of dollars of illicit funds throughout the process. To put this number into perspective, it means Binance’s compliance team responds to over 150 enforcement requests per day, handling multiple requests from regulatory and law enforcement agencies to assist in investigating potential illegal activities. This achievement demonstrates the effectiveness and influence of Binance’s compliance team.
Speaking of the billions of dollars of illicit funds, this number not only represents Binance’s crucial participation in combating financial crimes globally but also showcases its commitment to protecting users. It serves as a prime example of Binance’s contribution to the security of the cryptocurrency ecosystem.
At the same time, Binance has even 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 collaboration and knowledge sharing help combat cross-border financial crimes and enhance the security of the global financial system. For example, in 2023, Binance partnered with the Criminal Investigation Bureau, the High Prosecutors’ Office, and multiple local prosecutor’s offices in Taiwan to conduct a series of educational training activities. Binance’s team shared the latest trends in crypto assets and investigative techniques, helping over a hundred Taiwanese law enforcement officers enhance their understanding of crypto assets and strengthen their case-handling skills.
More of such international collaborations not only provide law enforcement officers with professional knowledge but also promote in-depth communication between the public and private sectors, setting a good example for the industry. Additionally, it helps combat illicit activities related to cryptocurrencies and contributes to the long-term development of the entire cryptocurrency ecosystem without causing any harm.
In 2023, Binance actively launched multiple new products and services, including copy trading and Web3 wallets, to drive innovation in the industry. These initiatives undoubtedly injected new vitality into the cryptocurrency industry and showcased 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 commitment not only reflects Binance’s long-term strategic planning for global business development but also demonstrates its continuous commitment to ensuring the security, compliance, and transparency of the cryptocurrency ecosystem.
Looking back at the overall changes in the cryptocurrency market in 2023, including all exchanges, including Binance, experienced significant ups and downs. However, Binance managed to make a fresh start by reaching settlement agreements with U.S. regulatory agencies, taking responsibility for past actions. With the experienced Richard Teng taking over as CEO, we can expect to see a Binance that is drastically different from before. As Richard stated in his year-end open letter:
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