Regulatory oversight in the crypto realm: A deep dive into communication practices


As crypto firms face a challenging winter season marked by an industry shakeup, regulators have launched rigorous investigations into companies’ governance, risk management, and compliance arrangements.

Among these, Binance, a prominent name in the crypto world, has come under particular scrutiny.

These points were discussed in a recent post by Theta Lake, who asked the question of whether the crypto winter was spotlighting the use of chat.

Chat messaging platforms play a significant role in the day-to-day operations of crypto firms. Although this method of communication is inherently neither commendable nor detrimental, its use has raised concerns regarding questionable governance practices. Regulators, including the U.S. Commodities Futures Trading Commission (CFTC), have notably used these chat records to spotlight these practices.

Financial services firms are keenly aware of the severe implications associated with unmonitored communications channels. Over the years, such oversight has resulted in billions of dollars in fines for the companies involved. The ongoing investigations into crypto firms have underscored that regulators remain attentive to all forms of electronic communication, pointing out their discoverable nature.

It is crucial for firms to capture all relevant internal and external communications, particularly chat messages. Regulators utilise these communications as a gauge for behaviour, regulatory and conduct risk, as well as the firm and its senior management’s culture. The CFTC’s Binance filing, for example, has highlighted several regulatory and legal breaches.

Among these breaches, the filing notes the use of a messaging application with an auto-delete function, ostensibly designed to ‘cover their tracks after communicating about inculpatory matters.’ Even after receiving document requests from the CFTC, Binance continued this practice for business communications. It also distributed document preservation notices to its personnel.

Moreover, the evidence suggests Binance prioritised commercial success over U.S. law compliance – a ‘biz decision’ that has raised eyebrows. Further concerns arose when compliance officers seemingly aided Binance customers in bypassing Binance’s compliance controls. A February 2020 chat even suggested that, while they could not openly accept U.S. users, they should devise ‘creative means’ to include them.

The Binance case serves as a stark reminder that electronic communications can easily become a source of conduct risk or even a negative cultural indicator within a firm. However, the converse can also hold true. A firm that effectively captures and utilises all forms of electronic communication can demonstrate a risk-aware culture in action.

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