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Middle EastDecember 22 2022

Binance battles to restore trust following FTX’s downfall

Binance's regional head of Middle East and north Africa, Richard Teng, speaks with John Everington about the regional and global outlook for the crypto sector following the implosion of arch-rival FTX, allegations of money laundering, and the evolution of the regulatory landscape in the Middle East and beyond.
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Binance battles to restore trust following FTX’s downfall

Richard Teng was appointed Binance’s regional head of Middle East and north Africa (MENA) in December 2021, just months after being announced as the crypto exchange’s CEO in Singapore. He previously served as the CEO of UAE-based freezone Abu Dhabi Global Market (ADGM), which has one of the most sophisticated regulatory regimes for virtual assets in the Middle East.

Q: Arguably 2022 has gone down as an ‘annus horribilis’ for crypto, with prices falling and the implosion of big names including Celsius, Three Arrows Capital and FTX. What is the outlook for the coming year?

A: If you look at any asset class, markets go through cycles. Cryptocurrencies are going through a downturn right now, but so are other asset classes like equities. It’s hard to predict what the new year will bring, as it really depends on the macroeconomic environment and factors such as interest rates and inflation. These will have a bearing on how well equities perform, but will also impact other asset classes such as crypto as well.

What’s more important for the crypto sector is that the industry continues to focus on building good use cases. People forget how young the industry is; despite all the growth there’s been, the adoption rate is still lower than for the internet in 1999. At Binance we’re still pushing for increased crypto adoption and deployment globally. There are some interesting use cases that are still being developed, and we’re continuing to build for the long term.

People forget how young the industry is; despite all the growth there’s been, the adoption rate is still lower than for the internet in 1999

Q: What is the state of adoption of crypto in the Middle East? Is it still predominantly a proposition for retail investors?

A: Markets like the UAE, Bahrain and Saudi have seen more than 50% growth during the past year in terms of users, which is impressive given the negative economic cycle we’ve been going through. Growth hasn’t been confined to the retail side; we’re seeing a lot more institutions and family offices coming into this space.

We’re working with a wide range of partners to deepen adoption in the region, including merchants and card providers, together with a number of partners that are looking to build on our BNB Chain [a blockchain network].

For Binance we’re working with merchants to accept crypto payments in the MENA region [and] card providers such as Mastercard to roll out crypto cards in the region. We’re working with many different projects that are looking to build on our BNB Chain in the region, and have announced agreements with large corporations including Majid Al Futtaim, JA Hotels, Palazzo Versace and STC Bahrain.

Q: Binance experienced $6bn worth of outflows in less than a week in mid-December. What has been the impact of FTX on regional volumes?

A: FTX has definitely impacted confidence in the sector globally, so in the short term it’s inevitable that there will be some FUD [fear, uncertainty, doubt]; it can’t be prevented. The immediate priority is to work with other industry players in the sector to rebuild confidence.

Among the steps we’ve taken has been to boost transparency not just for ourselves but for the sector as a whole, particularly when it comes to proof of reserves. We were the first to advocate publishing proof of reserves for crypto exchanges to enhance transparency and have done so.

We’ve also launched our industry recovery initiative, to which we’ve committed up to $2bn, working with other industry players such as Jump Crypto, Polygon Ventures and Aptos Labs to really support good projects that are going through a liquidity crunch and to make sure that they continue to be viable for the long term.

We're also trying to put in place a global industry association that can give proper input and feedback to regulators on key areas, to make sure that episodes such as FTX do not recur.

Q: How have discussions with regulatory bodies been since FTX?

A: We have good relationships with regulators in the region including the Central Bank of Bahrain, ADGM and Dubai’s Virtual Assets Regulatory Authority. Any time an episode like [FTX] occurs, we keep them informed of all developments and answer any questions that they have. They’re taking a very enlightened and analytical approach, and we look forward to helping them understand the crypto industry and why certain things are developing in a certain way.

We do envisage that there could be more regulations coming through on a global basis and that there could be some additional provisions in some of the local jurisdictions. We are fully prepared to meet these requirements, working very closely with regulators and other important stakeholders to uphold standards for the industry.

Q: The US Department of Justice (DoJ) was reported in December to be considering charging Binance with violating anti-money laundering laws and sanctions. Fellow exchange Kraken agreed to pay a fine in November for processing $1.7m in transactions from users that appeared to be located in Iran. How much of a problem is money laundering for crypto exchanges?

A: Regarding these allegations, we always co-operate fully with regulators and law enforcement agencies. A lot of these conversations are ongoing and confidential, so I can’t add much more to what’s already in the public domain. Regarding Iran, we’ve made clear our position that we don’t deal with residents of Iran, in compliance with sanctions requirements.

Binance’s law enforcement team is world class, including former employees of agencies including the FBI, Interpol, Europol, and the US DoJ. Not only do we work very closely with law enforcement agencies, but we’ve also rolled out an educational programme for agencies to help them understand how to properly monitor transactions in this space.

While we take the prevention of money laundering on our platform very seriously, statistics show that less than 1% of money laundering worldwide occurs via crypto, with 99% occurring in the fiat space. It’s far harder to trace $100m laundered via fiat currencies. Whereas if you look at the Bitfinex exchange hack in 2016, when the hackers tried to make use of the funds, those transactions were traceable, and the hackers were charged.

Q: Jurisdictions in the Middle East take very different regulatory approaches to cryptocurrencies. How do such approaches compare?

A: Virtual Assets Regulatory Authority has just been set up as the de facto regulator agency for crypto in Dubai, with the Dubai Financial Services Authority [the financial regulator of the Dubai International Financial Centre freezone] still not regulating the space. ADGM in Abu Dhabi and the Central Bank of Bahrain have longer track records.

The regulatory approach in Bahrain is a little different in that it’s a one-stop shop for banking, insurance and securities. In the UAE there are multiple regulatory agencies, and the interplay between them and who is regulating what still needs to be clarified a little.

Each has their own different value propositions, which each have their own strengths in different areas.

Q: The Saudi Central Bank last year hired Mohsen AlZahrani to head up its virtual assets programme. Are you in discussions with them?

A: Yes, we’re in ongoing discussions with them, together with [Saudi Arabia’s] Capital Market Authority. We’re very bullish about the Saudi market. We will continue to work very closely in terms of providing industry inputs into the framework that they’re developing, to help ensure that it's a proactive framework that supports the development of the industry while managing risks.

Q: FTX’s implosion has dampened the appetite for crypto assets in the Middle East, to put it mildly. How confident are you that the sector will recover in the short to medium term?

A: In the short term there’s going to be a lot of uncertainty, but the more we can work with regulators and industry stakeholders, the better off everyone will be, so that in the medium term confidence in the sector will return. At the end of the day, the industry needs to work together with regulators to restore confidence to the sector. The more we can do this, the better off everyone will be.

Despite all the disruption we’ve seen, some of the biggest names in finance, such as BlackRock and Fidelity remain strongly committed to this space. We’re still in the rebuilding confidence phase, but if you look ahead a little, the industry outlook is still bright.

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John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
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