Binance Reportedly Under CFTC Investigation Over U.S. Derivatives Trading Activity, CZ Responds

The U.S. Commodity Futures Trading Commission (CFTC) has reportedly launched an investigation against cryptocurrency exchange Binance, Bloomberg reported today.

The CEO of the exchange, Changpeng Zhao has seemingly issued a response to the reports of a CFTC probe.

CFTC Is Probing Whether Binance Has Permitted U.S. Residents To Trade Unlawfully

According to Bloomberg, the CFTC is investigating whether Binance allowed U.S. residents to trade derivatives on their platforms in contravention of laws. The people familiar with the matter did not give the exact period for the said trading activity.

Binance is not under the purview of the CFTC since it is not based in the United States (although San Francisco-based entity Binance.US serves U.S. customers), but the agency is in charge of overseeing derivatives trading in the U.S. The main concern for CFTC is that Binance possibly allowed U.S. traders to place wagers without reporting to the agency. 

Bloomberg, however, notes that the CFTC inquiry does not include any allegations of misconduct against Binance and might not result in any sort of enforcement action.

The probe comes barely a day after the exchange announced that it had tapped former U.S. senator and ambassador to China, Maxwell Baucus, to provide legal advice to the company and work closely with regulators in the United States. 

CZ Responds

Speaking during a live AMA on Clubhouse, Binance chief Changpeng Zhao did not reveal whether the reports about a CFTC probe are true. However, he maintained that the exchange is fully compliant. “We maintain a very collaborative posture with all agencies around the world, not just the US. We have an active dialogue with regulatory agencies”.

Shortly after the Bloomberg report was aired, CZ took to Twitter to describe the news as FUD (fear, uncertainty and doubt).

It should be noted that this inquiry comes as observers examine the role played by regulatory agencies in the cryptocurrency industry, especially now that the sector’s adoption has grown in leaps and bounds in recent years. As we speak, the U.S Securities and Exchange Commission (SEC) is entangled in a legal battle with blockchain firm Ripple — the company behind XRP cryptocurrency.

Additionally, late last year, the CFTC together with the Department of Justice (DoJ) charged BitMEX exchange with illegally brokering trades for U.S. traders, among other violations. This legal action led to senior executives like former CEO Arthur Hayes and CTO Samuel Reed stepping down from their roles at the company. Coinbase exchange halted its margin trading services after just nine months of operation, also following CFTC investigation.