ESMA probes Binance EU operations over MiCA reverse solicitation exemption

European regulators have begun closely examining Binance’s use of a legal exemption that allows the cryptocurrency exchange to continue providing services to customers in the European Union without direct authorization under the region’s new crypto regulations.

Focus on MiCA and reverse solicitation

The European Securities and Markets Authority (ESMA), together with financial authorities in France, Germany, and Greece, has reportedly started investigating Binance’s application of the reverse solicitation principle within the framework of the Markets in Crypto-Assets Regulation (MiCA). Binance, which remains the world’s largest cryptocurrency exchange by trading volume, has previously used this legal route to maintain business in the region while formal applications for local authorization move forward.

Reverse solicitation permits cryptocurrency service providers based outside of the EU to serve customers within the bloc only if those clients approach the company entirely on their own initiative. ESMA’s guidance, however, emphasizes that this exemption must not be used as a loophole to bypass MiCA compliance.

Binance withdrew its MiCA licensing application for Greece in June, stating plans to pursue authorization through another EU member country. The company reiterated on September 18 that it continues to work towards MiCA authorization and is committed to a long-term, compliant presence in Europe.

A source with knowledge of the situation indicated that Binance has been relying on reverse solicitation to serve some EU clients. Some traders in the European Union are reportedly transacting through Binance entities regulated in Abu Dhabi, raising further scrutiny from regulatory authorities.

Mini dictionary: Markets in Crypto-Assets Regulation (MiCA) – MiCA is the European Union’s regulatory framework for crypto assets, exchanges, and service providers, aiming to create a unified legal environment for digital assets across EU member states.

Ongoing compliance efforts and regulatory responses

Binance stated that access to its services within the EU would depend on specific factors, including the customer’s jurisdiction, the status of their account, and which Binance entity was providing services. When asked for comment, Binance reiterated its compliance with applicable regulatory requirements but did not clarify whether active discussions are ongoing with European Union regulators regarding its operations.

For its part, ESMA has urged EU lawmakers to strengthen the regulatory powers of national and European authorities over non-EU firms that interact with European investors without MiCA authorization. In its recent response to the European Commission’s regulatory consultation, ESMA argued that more robust legislation would facilitate swifter and more consistent supervisory action across EU member states, reducing opportunities for regulatory arbitrage.

ESMA noted that stronger oversight powers are needed to address attempts by non-EU firms to serve European customers without proper authorization, potentially exploiting differences between regulatory approaches.

The agency’s register tracking non-compliant crypto service providers increased to 173 companies as of September 30, up from 164 in mid-July. Binance, however, does not appear on this list, which ESMA notes is “non-exhaustive” and is regularly updated based on notifications from national authorities and publicly available data.

Regulators’ recent actions and future outlook

BaFin, Germany’s Federal Financial Supervisory Authority, declined to comment on the ongoing investigation, citing legal confidentiality obligations. French and Greek regulatory bodies, as well as ESMA, had not responded to requests for further information by the time of publication.

ESMA Chair Verena Ross stated earlier this week that the agency’s approach to MiCA has transitioned from drafting new regulations to actively supervising market participants and aligning regulatory practices across the European Union.

Verena Ross emphasized the shift in regulatory focus, highlighting the commitment to greater supervision and harmonization under MiCA across member states.

Binance remains under close observation as the EU deadline for transitioning to MiCA’s full regulatory framework approaches. The exchange continues to adjust its licensing and compliance strategies to fit the evolving European regulatory landscape.