SEC stands firm against crypto chicanery

IN a move last week that reportedly came as a surprise — although it shouldn’t have — to most cryptocurrency investors and fans in the Philippines, the Securities and Exchange Commission (SEC) formally asked the National Telecommunications Commission (NTC) to block online access to Binance, currently the world’s largest cryptocurrency exchange. The decision has provoked bitter protest from local market players, but it was the correct decision on the SEC’s part, and handled with more than enough accommodation for Filipino Binance users’ need to retrieve their funds.

The SEC first issued an advisory in November that a shutdown of Binance’s business in the Philippines was imminent, as the popular cryptocurrency exchange did not have a license, mandated by the Securities Regulation Code, to solicit investments from the public and engage in buying and selling securities. The SEC warned Binance to cease advertising its platform in the Philippines, and then made a request to Google and Meta, the operator of Facebook, to block Binance’s advertising on their social media platforms for local users.

Binance’s habitual willingness to evade regulatory requirements in the countries in which it operates was already well established before the SEC’s decision. In November last year, Binance and its now-ousted founder Changpeng Zhao agreed to plead guilty and pay nearly $4.3 billion in fines in the US to settle criminal money-laundering charges stemming from Binance’s failure to properly register its business and follow regulations. That plea deal was approved by a US federal court in February.

Also in February, authorities in Nigeria moved against Binance for failing to properly register as an investment business there. Nigerian law evidently regards such misbehavior much more harshly than in the Philippines, as two Binance executives who were in the country were promptly arrested.

Binance’s refusal to obtain the proper license and register its business here is reason enough for the SEC to act to block Filipino customers’ access to it, and it is not the first cryptocurrency exchange shut down by the SEC, although it is by far the largest. Last month, the NTC, at the SEC’s request, ordered all internet service providers to block the websites and apps of trading platforms OctaFX and MiTrade.

Beyond the regulatory requirements that the SEC is dutybound to enforce, the dubious record of Binance and other large cryptocurrency exchanges in general demands intensified scrutiny. Examples of large exchanges that have run afoul of the law include Mt. Gox in 2014 and FTX in 2022, both of which resulted in their founders’ being imprisoned for massive fraud. More recently, the US-based exchange Bittrex declared bankruptcy in April 2023 due to “an uncertain regulatory environment,” after being hit with a penalty by the US SEC for earning at least $1.3 billion in revenue while operating as an unlicensed exchange; it has since wound down its global operations as well.

Critics of the SEC decision against Binance have complained that Philippine investors were given insufficient time or guidance on preserving their funds, and were taking huge losses as a result of being blocked from access to the platform.

Luis Buenaventura, an assistant vice president at GCash and co-founder of the crypto exchange platform BloomX, lamented that “a lot of wealth is being destroyed this week.” Buenaventura went on to say, “The ban does not indicate any strong desire to protect the citizens they [the SEC] are responsible for.”

With all due respect to the GCash executive, this is utter gaslighting. The SEC’s ban on Binance is precisely an indication of its desire to properly fulfill its mandate to protect Filipino investors, by consistent enforcement of the regulations created for that very purpose. Filipino customers of Binance were given four months to make alternative arrangements, of which there are indeed a great many that are compliant with the relevant rules and regulations. Plus it is well-known good practice, advice that is continuously and clearly given to the investing public by the SEC and other authorities, that one should verify that any investment platform he wishes to use is properly registered. The SEC makes that information easily accessible online. While it may be hoped that the SEC does not have to take such forceful action against any investment platform, it is to be commended for doing so when necessary, as is the case here.