DUBAI: Dubai is tightening scrutiny of crypto licence seekers in the wake of last year’s bankruptcy of digital-asset exchange FTX, requesting additional information from applicants like Binance, say sources.
Officials at Dubai’s Virtual Assets Regulatory Authority (Vara) have in recent weeks asked Binance to provide more information on its ownership structure, governance and auditing procedures, said the sources.
Vara is requesting similar information from all international companies seeking permits, sources said.
Dubai’s stricter approach is a potential headache for Binance chief executive officer Changpeng “CZ” Zhao, who lives there and has made it the linchpin of expansion in the Middle East, as he faces increasing pressure from US regulators.
The emirate is trying to balance fostering innovation with the need to have proper oversight of an industry that’s been mired in high-profile scandals in the past year.
“Vara wants to turn Dubai into a capital for the digital-assets economy while safeguarding its business ties with Western jurisdictions like Europe that are adopting more muscular crypto regulations,” said Sam Blatteis, CEO of The Mena Catalysts, which provides government-relations advice to fintech multinationals expanding in the Persian Gulf.
In late March, the US Commodity Futures Trading Commission (CFTC) sued Binance and Zhao for allegedly violating derivatives regulations and accused the firm of having “sham” compliance procedures. Binance has called the lawsuit “unexpected and disappointing.”
“We have disclosed all necessary answers to Vara on a proactive basis and in line with our regulatory and fiduciary responsibilities,” Binance said in an emailed answer to questions from Bloomberg News.
The company also said it has provided information on its local entity’s ownership structure and external auditor.
Spokespeople at Vara didn’t respond to multiple calls and emails seeking comment. Vara officials are also seeking information on ownership, auditing and board procedures at the global group level of Binance, sources said.
Because of Binance’s size and complexity, those queries are taking longer to address, according to sources.
Binance doesn’t have a global headquarters and rather than a regular board of directors, it has a global advisory board.
Binance also has a complicated corporate structure, with several holding companies – including three named in the CFTC lawsuit – and an array of local entities.
In early February, a senior executive said Binance has been working to hire an auditor for its entire balance sheet but that it was challenging to find a firm able to take on the work.
The United Arab Emirates (UAE), of which Dubai is a part, has cracked down on dozens of over-the-counter crypto exchanges that set up there without licences.
Those efforts are part of a broader push to get the UAE off the Financial Action Task Force’s “gray list” of jurisdictions that don’t do enough to uncover illicit funds.
The UAE’s foreign ministry didn’t immediately respond to messages seeking comment.
The regulator’s public virtual-asset service provider register shows four companies in addition to Binance that hold licences: Komainu, Hex Trust, GC Exchange and Crypto.com.
Binance, Komainu, GC Exchange and Crypto.com have Preparatory Minimum Viable Product permits, meaning they can’t yet offer locally regulated digital-asset services in Dubai.
Hex Trust, which has an Operational MVP licence, confirmed that it’s received requests for additional information on ownership, auditing and board procedures from Vara.
That hasn’t prolonged the process of getting a permit, said Filippo Buzzi, managing director for Middle East and North Africa, in an email. Vara requested such details in the early stages of the application process, he added.
“From the very beginning the regulatory requirement was on par if not more stringent than what we faced in other jurisdictions in Europe or Asia,” Laurent Girouille, head of Komainu’s regional office in Dubai, said in an email. — Bloomberg