The US Branch of the world’s largest cryptocurrency exchange, Binance US, recently made changes to its deposit insurance policy. In an email sent to its users on October 16, Binance US shared updates on its terms of service, specifically regarding deposit insurance. The modifications align with guidance from the Federal Deposit Insurance Corporation (FDIC), and the changes pertain to the “BAM Fiat Wallet,” which is responsible for the custody of US dollars.
Changes in Deposit Options and Clarification on Insurance Coverage
Previously, Binance US allowed users to withdraw US dollars directly from their accounts. However, under the new terms, users will need to convert their US dollars to stablecoins or other cryptocurrencies in order to manage their crypto holdings. Binance US made it clear that this change was made in compliance with FDIC guidance. The updated terms of service emphasize that digital assets, including cryptocurrencies, are not considered legal tender and do not have government backing. Therefore, user accounts and value balances are not covered by FDIC or the Securities Investor Protection Corporation (SIPC) insurance.
This adjustment represents a departure from Binance US’s previous terms, which mentioned collaboration with USD custodians to ensure FDIC insurance coverage for US dollar deposits. It underscores the ongoing efforts of the exchange to navigate regulatory requirements for fiat on-ramps and off-ramps. Furthermore, the exchange recently experienced challenges with its euro payments partner, with a replacement yet to be announced. These developments highlight the evolving landscape of cryptocurrency exchanges and their interactions with traditional financial systems.
Regulatory Challenges and SEC Lawsuit
Binance US is currently facing regulatory scrutiny in the US, led by the Securities and Exchange Commission (SEC). In June, the SEC filed a lawsuit against Binance US and its founder, Changpeng Zhao (CZ), accusing them of operating unregistered securities platforms. The SEC also alleged various securities rule violations, including falsely declaring trading controls and engaging in unregistered securities sales. The regulator has raised concerns about custody practices and the exchange’s willingness to cooperate with legal requests.
“The SEC has made additional, unreasonable requests following the September 18 hearing,” said Binance.US.
In response to the SEC’s actions, Binance.US suspended dollar deposits, citing pressure from the regulator and their “extremely aggressive and intimidating tactics” towards the crypto industry. These tactics have made banking partners hesitant to collaborate with the sector. The exchange maintains that it is committed to complying with regulations while ensuring the growth and development of the cryptocurrency ecosystem.
