Binance uses MiCA vulnerability to continue to serve some EU customers: Report

Binance continues to serve some European customers through regulatory loopholes and offshore routing after missing the EU MiCA licensing period.

More than two months after missing the EU Cryptographic Asset Markets Regulation (MiCA) licensing deadline, Binance is still providing services to some EU customers and attracting new users. The platform leverages regulatory provisions and offshore routing mechanisms while seeking authorization in other regions.

Main summary

Although it missed the July 1 MiCA license deadline and withdrew Greece's application in June, Binance continues to serve some EU customers. The exchange relies mainly on "reverse solicitation" clauses to accommodate customers with independent access to the platform, while some EU transactions are routed through entities based in Abu Dhabi. The European Securities and Markets Authority (ESMA) has requested confirmation that Binance is properly winding down its business in the EU, while Binance is working to obtain MiCA authorizations in other regions. As of late August, Binance still controlled more than 45% of global spot trading volume, and its share of euro trading remained basically unchanged compared to before the MiCA deadline.

Regulation evasion: Reverse solicitation and offshore entities

According to Bloomberg News, as the world's largest cryptocurrency exchange, Binance remains active in the 27 member states of the European Union despite withdrawing its "Cryptocurrency Market" application in Greece and failing to obtain the authorization required for EU-wide operations in July. According to people familiar with the matter, Binance relies in part on MiCA's "reverse solicitation" regulations. The regulation allows unlicensed crypto companies to provide services to proactively approached customers, provided that the customer initiated the contact of their own will and is not influenced by marketing promotion. Binance allegedly interpreted the clause to allow it to accept new customers who independently seek and use the platform.

The report states that some transactions based on EU customers have been routed to Binance's entity in Abu Dhabi, where the business is subject to different regulatory frameworks. These arrangements allow Binance to maintain some of its European operations while pursuing MiCA authorizations. Binance said in a statement that it complies with regulations in the jurisdictions in which it operates and is committed to doing business in the EU on a "long-term, compliant basis."

"We are actively seeking MiCA authorization and see this as an important step in providing users with consistent, regulated and trustworthy services in the European market." The exchange said.

User retention testing after deadline

Uncertainty about the prospects of its European business has persisted for months since the July 1 licensing deadline. There have been previous reports that Binance was still opening EU accounts even in August, more than seven weeks after the deadline. Tests in Austria, France, Germany, Spain and Belgium found that some new users were able to complete registration and authentication, and active accounts could still deposit cryptocurrency. For example, an account created on August 19 using European ID and residential address was verified and subsequently injected with cryptocurrency. However, Binance does not appear on the European Securities and Markets Authority's list of authorized crypto service providers.

According to MiCA regulations, crypto asset service providers must obtain authorization from a regulatory authority in one of the EU member states. Once approved, the license can be used to provide covered services throughout the EU participating market.

Regulatory Directives and User Restrictions

Before the deadline, ESMA instructed unauthorized providers to stop recruiting new EU customers and limit remaining services to the steps needed to help customers exit. By July 1, the companies are expected to have implemented their business termination plans. For Binance, this change has had different impacts on customers in different regions. According to reports, in countries such as France, Spain, Italy, Poland, Sweden and Lithuania where Binance previously had local entities, customers received multiple emails asking them to leave the exchange.

Most affected accounts were restricted to withdrawals and not active transactions, although some customers were later able to revisit them based on Binance's interpretation of "reverse solicitation." Binance has told customers that assets will still be accessible when MiCA service changes begin on July 1. CEO Richard Teng said affected users will retain access to previous communication options, including withdrawals.

Failed Greek application and rumored ECB intervention

Binance had tried to obtain MiCA authorization through Greece, which would allow it to access customers across the EU market through a regulated "passport mechanism." However, its prospects deteriorated in June as review of the application intensified. According to Bloomberg, the Greek Capital Markets Committee was originally scheduled to review Binance's application at a board meeting on June 17, but the company withdrew the document on June 16. The regulator said no decision was therefore made.

Before withdrawing, Binance maintained that it had not received any official indication that its application would be rejected and expressed belief that it complied with the relevant MiCA requirements. As early as June, there were signs that Greece's licensing process was tending to refuse, endangering Binance's ability to continue serving EU customers after the transition period ends. According to Bloomberg, citing people familiar with the matter, European Central Bank President Christine Lagarde personally intervened behind the scenes to prevent the application from being approved. The European Central Bank declined to comment on this.

While Binance's Greek license applications stalled before the deadline, reports of Lagarde's involvement emerged. Binance insisted at the time that its application complied with MiCA requirements and warned that delays in authorization could affect competition and liquidity. With the Greek process blocked, Binance said it would seek other EU avenues if the application could not move forward. As of now, the exchange has not publicly confirmed which member state may accept its next application.

ESMA focuses on business termination

European regulators have been carefully examining how the exchange handles customer affairs without a MiCA license. According to reports, ESMA recently contacted Binance to ask for confirmation whether the company was appropriately terminating its business in the EU. The agency declined to discuss individual companies and said national regulators were responsible for imposing sanctions for violations.

Since immunity depends on customers proactively contacting without being solicited by suppliers, Binance's interpretation of "reverse solicitation" becomes particularly important. Nina-Luisa Siedler, a lecturer at the University of Applied Sciences in Berlin, told Bloomberg when advising the company on MiCA compliance that failure to obtain a license does not automatically mean Binance must close all accounts belonging to European customers. "The fact that they don't have a license does not mean they need to close all accounts held for European customers," Siedler said.

Despite this, restrictions remain in place in various markets. According to reports, after the July 1 deadline, French Binance users lost trading rights, including spot and margin transactions, but the withdrawal function is still available. The exchange's application availability also varies across the EU. In late July, users in a number of EU countries, including Spain and Latvia, reported that Binance apps had disappeared from the Google Play store and could still be downloaded in Poland. Binance attributed these changes to Google Play policy updates that affected crypto apps in certain markets.

Trading activity remains strong

Despite regulatory setbacks, Binance's status as the world's largest cryptocurrency exchange has not changed substantially. Kaiko data cited by Bloomberg shows that Binance accounted for more than 45 percent of global spot cryptocurrency trading volume in late August. Its share of euro-denominated transactions is between 3 and 4 per cent, a measure that does not capture all transactions involving European clients. The report showed that the euro's trading share was not significantly different from the level before the July 1 deadline.

Through the Apple App Store, Binance remains one of the most downloaded cryptocurrency trading apps in the EU, and its ranking has hardly changed in recent months. Licensed competitors have entered the post-transition market and have different regulatory positions. Coinbase and other approved providers can use MiCA's passport rights to provide covered services across EU member states, while Binance is still looking for another licensing avenue.

Binance's difficulties in Europe follow its $4.3 billion settlement agreement reached with U.S. authorities in 2023, covering anti-money laundering, sanctions and unlicensed currency transmission violations. Co-founder Zhao Changpeng (CZ) separately admitted failing to maintain an effective anti-money laundering program and was pardoned by former U.S. President Donald Trump after serving his sentence. Since then, Binance has increased compliance spending and cooperated with authorities. In June, the exchange said its annual compliance spending reached $300 million and reported processing more than 313,000 enforcement requests worldwide.

His next MiCA application remains unresolved. According to Bloomberg, Binance is preparing to seek authorization from EU member states other than Greece, but the jurisdiction in which it may submit an application has not yet been confirmed.