This article first appeared in The Edge Malaysia Weekly on February 28, 2022 - March 6, 2022

BINANCE, one of the world’s largest cryptocurrency exchanges, is looking to acquire a minority stake in MX Global Sdn Bhd, a digital asset exchange (DAX) licensed by the Securities Commission Malaysia (SC), sources say.

The sources say the acquisition is pending the SC’s approval, adding that it has received the green light from the Companies Commission of Malaysia (CCM).

In its email response to the matter, the SC said: “The SC does not confirm or comment on applications made to the SC”.  Meanwhile, CEO of MX Global Datuk Fadzli Shah said he had no comment when contacted by The Edge.

At the time of writing, a director of Binance in charge of global partnerships had not responded to The Edge.

According to a CTOS report, directors/officers of MX Global include Datuk Seri Mohd Mokhtar Mohd Shariff, who is an independent non-executive director of My E.G. Services Bhd (according to the company’s 2020 annual report), independent and non-executive chairman of TMC Life Sciences Bhd and chairman of licensed peer-to-peer financing platform Capital Bay; and Datuk Mat Noor Nawi, independent non-executive director of Cuscapi Bhd.

Another CTOS report shows that MX Global is wholly owned by Hachiman Technology Sdn Bhd, which in turn is fully owned by Jason Chan Ling Khee.

Chan was the chief technology officer of My E.G. Services, according to the company’s 2018 annual report. He was not listed in the company’s annual report in the following years and information on his Linkedin profile is scant.

Binance came under the scrutiny of regulators worldwide last year. The UK banned its services while Japan and Hong Kong issued warnings against it, primarily based on consumer protection and anti-money laundering checks.

In fact, the SC issued a public reprimand against Binance last July as it was operating as a DAX without obtaining the necessary approvals from the regulator.

The public reprimand was issued against Binance Holdings Ltd (registered in the Cayman Islands), its CEO Zhao Changpeng and three other Binance entities, including Binance Asia Services Pte Ltd which is registered in Singapore.

Binance was ordered to cease its operations immediately while its website was banned locally. However, many investors and traders in the crypto community continue to access its website using a virtual private network (VPN).

In Singapore, Binance Asia Services last December withdrew its application to the Monetary Authority of Singapore to operate a licensed cryptocurrency exchange, and wound down its operations in the country on Feb 13.

Instead, Binance announced last December that it was acquiring an 18% stake in Hg Exchange, a regulated private securities exchange in the city state.

In 2020, Binance made headway in Indonesia by acquiring cryptocurrency exchange Tokocrypto, the first exchange regulated by the country’s Commodity Futures Trading Regulatory Agency.

Andrew Vong, chief future officer of EquitiesTracker Holdings Bhd and trainer for the company’s cryptocurrency master class, is optimistic about Binance’s acquisition of MX Global.

He says such a move would add more vibrancy to the cryptocurrency industry and encourage innovation by creating stronger competition among market players.

All eyes will be on whether local investors can access Binance’s “global liquidity pool”. If so, they will be able to trade with Binance users across the globe, he explains.

For now, users of the local DAXs can only trade with others who have gone through the onboarding process of the local regulated exchanges.

“The liquidity of the local licensed exchanges is still not great, even for the largest one in the market,” Vong says.

An industry player who requested anonymity views the acquisition as favourable to the local cryptocurrency industry as it will attract foreign investments and create new jobs.

He agrees that locals will be looking forward to accessing Binance’s global order book if the acquisition goes through, as is the case in Indonesia at the moment.

“For instance, the order book Tokocrypto shows to its users on the screens is the same as that on the Binance website, which means its users can trade [cryptocurrencies] with Binance users across the globe.

“If this happens, it will be interesting to see if other licensed DAXs locally will open up their global order book to local users as well.

“As for now, the KYC (know-­your-customer) rules under the SC guidelines require users of a licensed DAX to be onboarded onshore. Users of local DAXs can’t perform cross-border trades with another person who is onboarded overseas.”

The person believes cross-border trades are not allowed because regulators find it difficult to conduct proper KYC and anti-money laundering checks on foreign cryptocurrency traders, which could lead to money laundering activities.

Switching strategy

EquitiesTracker’s Vong believes Binance is trying its best to comply with regulations. “In the crypto space where regulations are still being defined, it seems that Binance is ‘cornered’ by regulators around the world. I think CZ (CEO Zhao Changpeng) continues to evolve his strategy to comply with regulations.”

He says Binance does not have a global headquarters yet, partly due to its shaky relationship with regulators. It tried to set up one in Malta last year, but the move did not pan out.

“It is now in talks with Dubai and Abu Dhabi to set up its headquarters in the Middle East.”

Vong adds that the acquisition, if it goes through, is unlikely to have a significant impact on the local market as Binance is only acquiring a minority stake in MX Global.

Another industry player who is familiar with regulatory matters has a different perspective. He says Binance has shifted its strategy in its bid to comply with regulations globally.

“After failing to apply for a licence in Singapore, it seems to have switched its strategy to acquiring licensed entities in various countries to hedge its bets.”

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