• Binance’s options in Europe seem to be narrowing as evidenced by a recent string of withdrawals and rejections from local regulators.

• With the EU’s crypto regulation MiCA set to take effect in the next year or so, the firm only needs to be licensed in one member nation to serve all 27.

• But some countries like France and Germany are more prepared for MiCA than others, and which EU countries crypto firms choose for compliance will matter, legal experts say.

If recent headlines are taken at face value, it looks like Binance, the world’s largest crypto exchange, could be exiting Europe.

The exchange, having survived a wave of crypto collapses in 2022, is now facing regulatory pressure from all directions, with the U.S. likely to strike the greatest blow. U.S. prosecutors are weighing charges against Binance, while multiple regulators have filed suit against the company and its CEO Changpeng “CZ” Zhao. He reportedly considered shutting down Binance’s U.S. unit in a bid to save the wider company.

Meanwhile, a string of rejections from EU regulators and voluntary withdrawals from several other markets gives the impression that Binance might be running out of options in Europe as well.

But with the EU’s new Markets in Crypto Assets (MiCA) regulation coming in, the exchange may simply be – contrary to Warren Buffet’s mantra on investing – putting all its eggs in one basket by focusing most or all of its efforts on compliance in fewer EU countries. And that just might be what it needs right now to succeed in Europe in the long term.

Companies looking to operate in the European Union had to register or get licensed in each jurisdiction, but that won’t be necessary when MiCA comes into effect in around 12 - 18 months.

“You have to apply for one license in one country. And then you get almost like a passport to provide your services across all 27 EU member states,” said Emilien Bernard-Alzias, partner at law firm Simmons & Simmons LLP.

EU’s single market

Like other crypto exchanges, Binance also bet big on Europe, applying for licenses and registrations in several countries in an effort to serve as many markets as possible.

But recent developments – from being ordered to halt operations in Belgium, quitting the Netherlands after failing to get a license, giving up its registration with a Cyprus regulator, and withdrawing applications for regulatory approval in Austria and Germany – have seemingly narrowed Binance’s options in Europe.

The company has said its withdrawal from Cyprus was in preparation for MiCA coming into effect, and its efforts to focus on fewer European jurisdictions. Although it preemptively withdrew an application for approval in Germany following reports that a custody license was denied by the country’s financial regulator, BaFin, the company has said it still intends to apply for licensing in Germany.

At press time, Binance was registered with regulators in France, Italy, Lithuania, Spain, Poland and Sweden, according to its website. Of those countries, where Binance chooses to focus its resources on to become MiCA compliant may matter – and the exchange says it will be flexible to become a regulated entity.

“MiCA is a pragmatic solution to the shared issues that the industry and regulators face together. It provides a clear route to compliant access to the single market for businesses while also providing strong guardrails that protect users while supporting innovation,” a spokesperson for Binance said in an emailed statement to CoinDesk. “With existing registrations in six EU countries, Binance stands ready to make any necessary changes to our business during the implementation period to fully comply with MiCA’s requirements.”

Choosing a jurisdiction

It matters which EU countries crypto exchanges seek approval in at this stage, because not all nations are equally ready to implement MiCA, Bernard-Alzias said.

For instance, countries like Italy and Spain opened registries for crypto firms operating locally to comply with the minimum requirements set by the EU’s anti-money laundering directive AMLD5. Entry into these registries require little more than a local address and a few bits of information.

Meanwhile, other jurisdictions like France and Germany have established more robust crypto licensing regimes that involve thorough examinations of the makeup and management of a business before approving registration or licenses.

According to Anika Patz, associated partner at law firm YPOG, crypto firms in general don’t get licenses easily in Germany thanks to a “diligent” regulator looking to avoid another scandal like FTX or Wirecard, where the payment processor committed accounting fraud to hide losses for at least five years until its insolvency in 2020.

Crypto custodians that wanted to operate in Germany had the chance to enter in a grandfathering period where the firms needed to apply for a license under the German Banking Act but were allowed to continue operating under a preliminary license. To obtain a license, providers have to build up their organization with “people on the ground,” including robust compliance and risk management teams as well as sufficient IT knowledge and infrastructure to prove to BaFin that the business is legitimate, according to Patz.

“If you propose a business where basically none of your infrastructure’s based in Europe … If you outsource all of your functions to third countries, and you have two people on the ground here [in Germany], [BaFin] cannot really say you are in charge of your business. And it will not provide your license,” Patz said.

Patz and Bernard-Alzias agree Germany has a complex licensing process for crypto firms compared to other EU member states – which is modeled after the EU’s Markets in Financial Instruments Directive (MiFID II) – and crypto firms that are already licensed under the German regime will be able to transition smoothly into the MiCA regime. But Bernard-Alzias contends that the stringent regime might also be the reason there aren’t too many crypto firms based in Germany.

“If you are a MiFID firm, honestly, it’s quite easy for you to become a crypto asset service provider” under MiCA because Germany’s MiFID regime is “even more complicated” and for more complex firms, Bernard-Alzias said. “But the fact is there are not many crypto service providers in Germany because of that,” he added.

Betting big on France

Meanwhile, France has been busy courting crypto firms with its own MiCA-ready licensing regime. Not only is the country considering a fast-track to licensing for companies already on its vetted registry with the financial watchdog AMF, it recently handed out its first ever crypto license to Societe Generale’s SG Forge. AMF on Thursday introduced “enhanced” registration requirements for crypto firms to align with MiCA.

Binance is registered with the AMF but has yet to obtain a license. Zhao, who praised the MiCA regime in 2022, also said Paris was likely to “explode” in the next five years as the crypto hub of Europe.

But it was recently revealed that the exchange has been under investigation by public prosecutors in the country since at least February 2022 and that its offices were raided earlier this year, seemingly dimming Binance’s chances of getting licensed.

Generally speaking though, investigations by prosecutors don't necessarily hurt a company’s operations in the country, according to Bernard-Alzias. For instance, offices of banking giants including Societe Generale and HSBC were searched by prosecutors in March as part of a massive tax fraud case.

Although there’s no saying if or when Binance might finally win a French crypto license, given BaFin’s track record for approving crypto firms, France might be its likely path to MiCA compliance – and that may be the case for many companies looking to enter the single market.