Binance and the Mica Regulation: An Analysis of Legal Requirements and Financial Consequences

Abstract

The purpose of this thesis is to analyze how the implementation of the Markets in Crypto-Assets regulation (MiCA) will affect Binance as a cryptocurrency exchange, according to additional obligations for the minimization of the risk of money laundering, and furthermore, to which extent Binance can maintain its cost efficiency by managing the transaction costs incurred. The thesis presents Binance's perspective, as they are the object of the analysis.

The legal part analyzes how the MiCA regulation will affect Binance. In order to create an understanding of how the MiCA regulation imposes additional obligations, the analysis includes an examination of the current anti-money laundering directive. Furthermore, the analysis includes some of the relevant provisions that MiCA presents. According to these requirements, the analysis considers what is understood by the regulations and further what kind of activities and services Binance are performing today to shed light on how the regulation affects them. A comparison of the obligations in the two regulations will analyze whether Binance will be subject to additional obligations due to its business.

The economic part analyzes whether the regulation has led to the risk of money laundering as an externality and further to what extent transaction costs arise according to the risk of money laundering, to finally analyze to what extent the costs can be handled. Based on Oliver Williamson's transaction cost theory and the theory of externalities, it will be analyzed if there will be increased transaction costs for Binance. Proposals for solving the problem are based on the Coase theorem and Pigou's solution of externalities.

Finally, based on the legal and economic analysis, the integrated part will analyze which risks are associated with the regulation from Binance's point of view. Furthermore, it will be analyzed to what extent the MiCA-proposal can secure the combination of reducing the risk of money laundering and maintain cost efficiency by managing the transaction costs incurred.