A settlement between the U.S. Department of Justice and the CFTC was reached with Binance last year, leading to Binance agreeing to pay a billion-dollar fine. This agreement marked a period of increased activity for the company. As part of the settlement terms, an external observer was to be appointed to oversee Binance's operations. Today, the decision regarding the selection of this observer was finalized.
The Agreement and Binance's Operations
Binance, among other cryptocurrency firms, took advantage of the ambiguous nature of crypto regulations to grow rapidly while paying limited attention to global regulatory standards. However, the U.S. government made it clear that previous indiscretions in operating within legal gray zones would not be ignored. Binance has now committed to a new chapter under a new CEO and plans to establish a physical headquarters. Notably, the former CEO CZ is no longer leading the company, and efforts are underway to facilitate the external observer.
For the next three years, Forensic Risk Alliance (FRA), a London-based consultancy specializing in forensic accounting and compliance, will oversee Binance's compliance with regulations. This appointment was made to ensure transparency and regulatory adherence by a third-party observer, as mandated in the agreement with the Department of Justice.
Oversight and Investor Confidence
The assignment of FRA as the external observer for Binance came after competition with another consultancy firm, Sullivan & Cromwell. The monitoring by FRA is a proactive step to maintain transparency and regulatory compliance. This external oversight can provide a sense of security to investors, potentially lowering the risk of legal issues. The presence of a third-party observer can act as a deterrent against potential wrongdoing.
After recently stepping down as CEO, Changpeng ‘CZ’ Zhao was found guilty of breaching the Bank Secrecy Act and engaging in unlicensed money transfer activities, resulting in a four-year prison sentence.
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