Why the banning of giant cryptocurrency exchange Binance isn’t really a ban

Cryptocurrency trading isn’t regulated and the hard truth is that watchdogs have little power over this type of company, writes James Moore

The dilemmas created by cryptocurrencies is taxing central banks and regulators the world over (AP)

A matter of minutes after seeing the headlines trumpeting “Binance banned by the Financial Conduct Authority” I’d clicked on to the website of the world’s largest cryptocurrency exchange, put in my email address and created a password.

If I’d have added my credit card, I’d have been free to trade to my heart’s content. Needless to say, I decided I could live without that. I’m better at writing about money than I am dealing in it. If I was any good at the latter I’d be living in a much bigger house.

I’m also a cautious investor so I’m inclined to take note when the UK’s top financial watchdog plugs in the equivalent of a bright red flashing light and pumps the recording of a police siren through a Bluetooth speaker.

But while it’s created a lot of noise by doing that, it’s a strange sort of crackdown when a “banned” company can still take your money, one that illustrates not the regulator’s strength but rather its weakness when it comes to cryptocurrencies and crypto-related companies.

Binance’s UK arm might have been barred from undertaking any regulated activity and its website is supposed to tell the world that it’s not overseen by the FCA. But Binance’s UK arm wasn’t actually engaged in those sort of activities in the first place.

The services that might have attracted its attention, and that I started the process of signing up for, can be freely accessed via other jurisdictions, wherever they may be, just as they were prior to this action.

The hard fact is that the watchdog has very little hold over this type of company. Shockingly, it doesn’t even have the power to police their promotions on, say, YouTube.

A Jupiter, or a Fidelity, or a Legal & General, would never dream of putting up an ad with a pretty graph that said “look at what our top performing fund has done, click on the link below to get a piece if you want to get rich quick”.

Taking such a step would ruin their reputations and put them on the express train to fine-town, a heap of public opprobrium and a truckload of trouble for their executives.

You don’t run any sort of a graph in a financial ad without first warning the punters that past performance is no guide to the future, that your capital is at risk when you buy any sort of investment product and that you should be thinking about maybe getting advice before going ahead.

Binance and its peers can, however, in theory simply do it. There’s no requirement for any type of warning and their ads aren’t held to any standards when it comes to buying Bitcoin, Etherium, or any of the others and what that might do for you.

Whatever your view on crypto, that’s staggering. If you think about it for a while it should start to make your head ache.

Crypto-exchanges with a meaningful UK base are supposed to register with the FCA and comply with anti-money laundering rules. There are some that do that and I suppose the rules could be interpreted creatively to put the heat on any of them that behaved badly in other areas of their businesses. But those inclined towards that probably wouldn’t bother with a UK presence in the first place.

Beyond its value as a warning, the FCA’s Binance “ban” may have some additional worth if it steers punters towards those at what you could consider as the respectable end of the market.

But other than that, it doesn’t amount to a lot.

The dilemmas being created by cryptocurrencies, and their enormous popularity with a particular subset of mostly younger investors, isn’t unique to the UK. Far from it. The issue has been taxing central banks, regulators and policymakers the world over.

The screws have slowly been tightening but there’s still an awful lot of head-scratching going on. For its part, the UK Treasury has been considering the results of a crypto regulation consultation that asked a lot of questions, but had less in the way of answers, since March.

The government’s stated goals – ensuring financial stability, protecting consumers, encouraging innovation – could be in conflict when it comes to this knotty problem and it doesn’t seem entirely sure about how to proceed.

If something goes badly wrong while it dithers, you can bet the FCA will be lined up as a convenient whipping boy, even after the step it has taken with Binance.

Clearly, the regulator’s crypto-lot is not a happy one.