Binance’s new chief executive, Richard Teng, faces formidable obstacles as he attempts to turn a new page for the world’s largest cryptocurrency exchange. These problems include spiraling compliance expenses, persistent legal headaches, and a diminishing market proportion.
This week, Teng was swiftly appointed CEO of Binance after the company’s founder, Changpeng Zhao, pleaded guilty to violating U.S. anti-money laundering rules as part of a $4.3 billion settlement to conclude a years-long probe by the United States of America.
Experts, investors, and former regulators claim that Teng has to deal with years of intrusive financial surveillance in the United States, a lawsuit that the United States Securities and Exchange Commission (SEC) has filed, and the possibility of losing its dominant position in the cryptocurrency industry.
According to four interviewees, Teng has a very challenging task in attempting to change the culture at Binance. On Tuesday, the Secretary of the United States Treasury, Janet Yellen, stated that the cryptocurrency exchange Binance “turned a blind eye to its legal obligations in the pursuit of profit” as it “allowed money to flow to terrorists, cybercriminals, and child abusers.”
Teng, who worked as a financial regulator before joining Binance, stated on social media that he would prioritize ensuring customers of Binance’s “financial strength, security, and safety” and would coordinate with other authorities “to uphold high standards globally.”
“Teng is seen as steady hands,” said Carol Alexander, a professor of finance at the University of Sussex who has followed Binance for years. “Teng” to lead a culture transition at Binance, a company that Zhao has molded into his image, would be “hugely difficult,” according to her assessment of the situation. In the first twenty-four hours after Zhao’s passing, investors withdrew nearly one billion dollars from Binance, making it one of the exchange’s days with the highest daily outflows in the last year. The response indicates the difficulties for Teng, who was once in charge of Binance’s regional markets.
Zhao is still a significant stakeholder in Binance, even though the settlement with the United States prevents him from further participating in the exchange’s management or operation. Yi He, who helped develop Binance and is also the mother of Zhao’s children, continues to serve in a vital executive capacity at the firm. “New page,” she said in the post she published on Tuesday.
When Reuters contacted them with a synopsis of this piece, Binance did not make Teng available for an interview. Simon Matthews, a spokeswoman for Binance, told Reuters that the business had not implemented “compliance controls adequate for the company that it was quickly becoming” and that it had made “misguided decisions” as it rapidly expanded.
“Richard was hired two years ago to help Binance mature and move past these historical issues,” Matthews explained, noting that the company has “worked hard to restructure our organization and personnel and upgrade our systems.” He said the company had “new leadership” in place, consisting of individuals with expertise in compliance, law enforcement, and significant organizations. A request for a response was made to Zhao’s attorneys, but they did not answer.
OVERSEER OF THE MONITORING
As part of the resolution, the Financial Crimes Enforcement Network (FinCEN) of the United States Treasury will oversee Binance for five years under “financial monitorship.”
In a statement made public on Tuesday, the Treasury stated that FinCEN would continue to access Binance’s books, records, and systems and “oversee remedial undertakings” necessary to address Binance’s non-compliance with anti-money laundering and sanctions regulations.
Even for mainstream financial institutions with extensive experience working with regulators, such measures are unique, complex, and expensive, according to attorneys and former regulators who have worked in the field.
“It’s a real millstone—everything you are doing is subject to scrutiny,” said John Reed Stark, a former chief of the SEC’s Office of Internet Enforcement. “Everything you are doing is subject to scrutiny.”
According to a series of stories published by Reuters in 2022, although the exchange claims it has increased expenditure on compliance, Zhao reportedly spent years working to conceal it from authorities.
Nevertheless, investors believe that Binance should be able to handle both the higher compliance expenses and the fines imposed by the United States.
On Wednesday, Teng made a post on social media in which he said that “the fundamentals of our business are solid.” “Our capital structure is debt-free, expenses are modest, and, despite the low fees we charge our users, we have robust revenues and profits.”
Before Zhao hired Teng to lead the Singapore office of Binance in 2021, he served as the chief executive officer of Abu Dhabi Global Market from 2015 to 2021. His prior positions have included serving as the chief regulatory officer for the Singapore Exchange (SGX).
In May, he was promoted to head of Binance’s regional markets and was generally seen as a possible successor to Zhao.
Binance now has “an opportunity to move past mounting enforcement actions and chart a path towards stability and a fresh beginning,” according to Rajeev Bamra, director of digital assets strategy at Moody’s Investors Service. His ascent to the top role represents “an opportunity for Binance to chart a path towards stability and a fresh beginning.”
On the other hand, unresolved legal issues make it more difficult to start again with a clean slate.
Binance is reportedly conducting a “web of deception,” which includes falsely inflating its trading volumes and transferring cash from its customers; the SEC has filed a complaint against the exchange. Binance has issued a statement refuting the claims.
Additionally, it is the subject of an inquiry in France for the possible commission of aggravated money laundering. Binance is also facing pressure on the front of its business operations.
It was the undisputed king of the cryptocurrency industry for years, but in 2018, it saw a steep decline in its market share. According to CCData, it controlled 32% of cryptocurrency spot trading and 50% of cryptocurrency derivatives trading the previous month. This decreased from January, when it controlled 55% of cryptocurrency spot trading and 62% of cryptocurrency derivatives trading.
Market observers claim that the exchange’s ongoing regulatory issues and the conclusion of Binance’s zero-fee transaction promotions are to blame for the decline.
According to CCData, many other exchanges, such as OKX, registered in the Seychelles, have gained market share this year. After Binance, OKX is the cryptocurrency exchange with the second-largest market share.
According to Joseph Edwards, head of research at London-based cryptocurrency firm Enigma Securities, the exchange may lose more market share over the longer term due to lower marketing and business development spending due to the fines imposed by the United States. “But that’s talking quite far down the line—they are a powerful incumbent overall.”
