The global cryptocurrency trade poses regulatory and other challenges for monetary authorities in various countries, as well as frictions. In Israel, the Capital Authority – the government body responsible for managing the capital market, exchanges, currency exchanges, etc. – has recently stopped trading of the international crypto-exchange giant Binance.
The authority, which is responsible for licensing for groups working in crypto, is asking Binance to clarify the types of services it provides to Israelis and the licenses it operates under.
According to reports, most of the groups active in the field of the stock market have applied for a license to operate in Israel by force of a permit to continue trading. In contrast, Binance (a relatively new player in the country) never submitted an application.
Binance is one of the most popular exchanges in Israel, and although it is international, it created platforms in Hebrew targeting Israelis. An estimated 200,000 Israelis transacted on its market; its fast interface suits the Israeli fast-track/high-tech modus operandi.
The Capital Authority’s investigation aims to Checkamong other things, whether Binance’s non-compliance with Israeli regulations makes it difficult for investors to return funds to the financial system in Israel.
Apparently, the Binance exchange encountered difficulties work with local regulators in many countries, and a few weeks ago it was banned in Britain until it arranged the necessary licensing. It is the largest crypto exchange in the world, with 30 million registered customers and a complex ownership structure, and its BNB coin has a market value of $70 million. It was founded in China in 2017 by one of the richest people in the world, Changpeng Zhao, but moved when Chinese authorities banned crypto activity.
Binance wants to be decentralized, like the markets on which it operates. However, he started meet challenges with more and more regulators, such as an alleged failure to obtain a proper license to operate, alleged non-compliance with regulations regarding money laundering, allegations of manipulation and a claim that its coins are in fact securities, without proper process for selling securities.
Two types of crypto coins offered to the public: coins that are considered investment assets, which are primarily used to accumulate value and transfer it, and coins that provide additional functions, such as voting rights, right to participate in the profits of the project that issued them, and more. These are in fact considered securities and their sale must be authorized by various regulators. Authorities claim that some of Binance’s assets are actually securities.
Israel, like most countries, regulates the sale of securities. In recent years, Binance, like the way it operates in many countries, has created a Hebrew-language website specifically for Israelis. It allowed the purchase of crypto by credit card in shekels and provided the ability to buy a huge range of cryptocurrencies, unlike local exchanges which mainly focus on Bitcoin and Ethereum.
These expanded offerings made Binance particularly attractive to Israelis, who sought out cryptocurrencies as an investment route with exceptionally high returns. Trading is especially easy for small investors.
It is also popular because investors can buy cryptocurrencies without the usual identification process. A few months after starting to operate in Israel, Binance began requiring preliminary identification from traders. Israel is particularly susceptible to money laundering attempts by terrorist groups like Hamas, and lack of identification was a bright red flag. But these challenges haven’t stopped Binance from continuing to grow.
The Russian invasion of Ukraine threatens to present another problem for Binance: sanctions against Russia. Zhao announcement that he would not limit Russian investors, because he thinks most of them do not support the war against Ukraine.
“To buy and sell cryptocurrencies in Israel, you need approval from a financial service provider, which the Capital Authority is responsible for,” said Tomer Ravid, owner of an Israeli company that regulates cryptocurrencies, to Al-Monitor. “As far as I know, Binance did not do this and started trading in Hebrew… Binance, it seems, did not report any unusual actions to the Capital Authority, so it has obviously caught the attention of the authorities. With this in mind, the Israeli authorities are now studying the matter in more detail and formulating basic rules to better control the trading of digital currencies.”