OSC investigating crypto exchange Binance despite Canadian exit (2024)

Weeks after global crypto giant Binance announced it was pulling out of Canada because it didn’t agree with new rules put in place by the country’s regulators, a document published the Ontario Securities Commission shows Canada’s largest watchdog is investigating the crypto platform’s conduct in this country.

Documents filed by Binance and published by the regulator May 30 show the OSC is attempting to use its powers, including summons, to compel the production of documents and data from Binance and potentially third parties.

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The crypto platform is seeking to have those efforts — initiated May 10 and 11, the day before Binance announced its exit from Canada — quashed because an earlier agreement between Binance and the OSC in 2022, called an undertaking, precluded the regulator from taking enforcement action based on past conduct, according to the document. Binance had tussled with the OSC in 2021 and 2022 over whether it could serve Canadian clients.

Binance, founded by Canadian Changpeng Zhao, is incorporated under the laws of the Cayman Islands and carries on business through its registered office located in George Town, Cayman Islands, according to the document. Binance Canada Capital Markets Inc. and Binance Canada Asset Management Inc. were incorporated under Canadian laws in December 2021 for the purposes of servicing Canadian residents if regulatory approval was granted.

The head office of Binance Canada was located in Calgary and the crypto platform was never registered with the Ontario Securities Commission.

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According to an amended notice of application published May 30, the OSC issued an “investigation order” on May 10 that “authorizes an extremely broad inquiry into whether Binance may have taken steps to circumvent Ontario securities law and compliance controls in relation to Binance.com or engaged in conduct contrary to Ontario securities law and/or the public interest without any limitation.”

Binance’s application, filed by lawyers at Borden Ladner Gervais LLP in Toronto, says the OSC’s investigation order did not particularize any alleged breaches of Ontario securities law, an undertaking signed in 2022, or conduct contrary to the public interest by Binance beyond facts that were admitted by Binance in the undertaking.

On May 11, the OSC also issued a summons addressed to Binance Holdings Ltd. that required the production of documents and included a blanket request for “all communications regarding Ontario (or Canada generally) among directors, officers, employees, contractors, agents and consultants of Binance Holdings Limited and related entities, including Binance Canada Capital Markets Inc. … since January 1, 2021, without limitation,” according to the May 30 document.

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The summons did not require the attendance of any person to testify, according to the document, which seeks the revocation of the investigation order and the quashing of the summons.

The document contends that the investigation order is “a breach of the Commission’s settlement agreement with Binance” and should be revoked because it is “an abuse of the Commission’s process, as the repudiation of a settlement agreement and re-litigation of past conduct that led to the Undertaking.”

Binance argues that the summons should be quashed because, among other things, it requests documents and information that have no legitimate connection to the investigation order and is “too broad to be enforced and is an inappropriate fishing expedition into the affairs of Binance.”

The crypto platform also advances Canadian Charter of Rights and Freedoms arguments against “unreasonable search and seizure.”

The document also sheds further light on Binance’s stated reason for leaving Canada on May 12: New regulations put in place across the country after the abrupt November 2022 collapse of FTX Inc., the world’s second-largest crypto exchange.

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At the time, Binance was working on registration with the Alberta Securities Commission (ASC) but was informed that it would have to conform with the new regulatory regime. In April 2023, the ASC informed the crypto platform that a Binance stablecoin (BUSD) would not be approved by the Canadian Securities Administrators as a value-referenced asset, and that both BUSD and another cypto coin known as BNB would be subject to investment limits applied by certain provinces.

The document said Binance advised the ASC of its plans to withdraw from operating in Canada on May 2, 2023, more than a week before the OSC issued the investigation order and summons on May 10 and 11. The official announcement from Binance about its planned withdrawal was scheduled to take place on May 19 but, the document said, Binance was worried word of its departure would leak out and approached the ASC to move the date up to May 12.

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