SEC Launches Investigation into Binance.US

The United States Securities and Exchange Commission (SEC) is reportedly looking into Binance.US.

Binance.US is the American division of the world’s biggest crypto exchange. At writing, the SEC’s major objective during its rumored probe is to discern Binance.US’s relationship with two trading companies, Merit Peak Ltd and Sigma Chain AG. 

The aforementioned companies provide liquidity for Binance in exchange for the spread on executed trade orders. Documents dating back to 2019 connect Binance CEO Changpeng Zhao to both trading firms. Furthermore, sources claim that he also headed this organization until recently. 

According to Coinmarketcap.com, Binance commands the most liquidity in the world among other crypto platforms. The exchange cannot supply enough assets for customers on its platform alone. Therefore, market makers like Merit Peak Ltd are sourced to assist with the pressure of demand. Trading companies offering liquidity turn a profit from the difference between the bid and ask price on the benefiting exchange platform. 

In addition to providing liquidity, market makers also preserve the stability of digital assets. Low liquidity leads to high spreads between bidding and asking price, which in turn leads to ridiculous spikes in price volatility. However, it is mandatory by law for an exchange to divulge information on all associated companies providing liquidity to its users. 

The US Securities and Exchange Commission aims to discover if partners in the Binance.US enjoy the perk of prioritized access and transaction speed on the platform. Additionally, the regulatory body intends to find out if Binance publicly identified with the concerned companies as market makers.

Binance’s History with Regulators

In the last three years, different regulatory agencies have targeted Binance for investigation on more than one occasion. Following the ban of Binance in the United States jurisdiction, a supposed independent division, Binance.US launched in 2019. Even then, many touted it to exclusively offer trading services for US-based customers. 

This is not the first time the SEC will be probing Binance, even despite the creation of an American subsidiary. Last year, the SEC conducted investigations accessing the claims of Binance.US’s independence from Binance. 

The recent swing of action from the SEC seems to be in fulfillment of its promise to closely monitor cryptocurrency exchanges. Shortly after the SEC’s announcement of an open investigation on Binance, Reuters made its own private investigations and claimed to have discovered some inconsistencies in the exchange’s operations. 

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In the Reuters report, which was published last month, the publication suggested that Binance relaxed KYC procedures for high-capital clients. It also claimed that the exchange executed business activities in a manner that showed discrepancies between the company’s actions and its own compliance department’s advice. Binance is yet to release an official statement on SEC’s probe rumors.

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