Binance Sued by CFTC Over Unregistered Crypto Derivatives Products

The Commodity Futures Trading Commission (CFTC) announced Monday that it has filed a lawsuit in the U.S. District Court for the Northern District of Illinois against crypto exchange Binance and its founder, Changpeng Zhao, on allegations of offering unregistered derivatives products in the United States. According to the suit, Binance operated a derivatives trading operation in the U.S., offering trades for cryptocurrencies such as bitcoin (BTC), ether (ETH), litecoin (LTC), tether (USDT), and Binance USD (BUSD).

What Are Crypto Derivatives?

Cryptocurrency derivatives are financial instruments whose value is derived from an underlying cryptocurrency asset like Bitcoin or Ethereum. These contracts allow traders to speculate on market movements without actually owning any of the underlying assets, which can be helpful for hedging risk or profiting from volatile markets without having to actually purchase any coins. As such, they are often highly sought after by sophisticated traders looking to take advantage of price movements in the crypto space.

The Allegations Against Binance

The lawsuit alleges that Binance offered these unregistered derivatives products to customers in the U.S., which violates federal law according to CFTC Chair Heath Tarbert who said “We will not tolerate violations of the Commodities Exchange Act and CFTC regulations” in response to the complaint filed against Binance. In addition, it claims that under Zhao’s leadership, employees were directed to spoof their locations through virtual private networks so as to further evade detection by regulators. If found guilty of these charges, Binance could face hefty fines and other penalties from US authorities.

The CFTC’s suit against Binance is just another example of how seriously US regulators are taking cryptocurrency-related activities within their borders. It serves as a warning to exchanges offering unregistered cryptocurrency derivative products that they may be held accountable if they do not comply with US laws and regulations. Chief Risk Officers, Chief Compliance Officers, and Chief Audit Officers should take notice and make sure their organizations are aware of all relevant laws when operating within the United States or any other jurisdiction where they may have customers or operations located. Failure to do so could lead to significant fines and reputational damage.

Managing your risk in emerging fintech doesn’t have to be difficult. Using Connected Risk to manage your holistic GRC lifecycle can keep you from going the way of Binance. Learn more on here and speak to a Solutions Expert.

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