Binance Closes Prime Brokerage Loophole

Binance is taking steps to close a loophole in its Link Program that previously enabled prime brokerages to exploit its multi-tiered fee structure for profit. The platform had allowed top-tier brokerage partners to benefit from trading fee discounts, which could then be passed on or arbitraged to their clients.

Revision of VIP Tier Benefits

The loophole was often achieved by aggregating multiple accounts under a single umbrella, sometimes trading on behalf of these clients, which enabled some platforms to earn extra revenue by charging their clients higher fees than the discounted rates they themselves enjoyed.

The “VIP 9” tier at Binance, which is available to users trading at least $4 billion per month, offered significantly reduced costs compared to other levels.

Prime brokers often reached this tier by pooling the trading volumes of various clients, securing lower fees for themselves while imposing higher rates on their clients and retaining the difference as profit.

However, starting July 1, Binance plans to overhaul Link Plus, an interface that allows prime brokers to manage accounts for institutional clients.

This change aims to bind clients directly to the tier corresponding to their own trading volumes on Binance, thereby preventing the aggregation of client accounts for tier benefits.

According to a company spokesperson, this adjustment is likely to strip several top-tier brokers of their status, as it eradicates the possibility to leverage pooled client accounts for tier advantages.

The impact of this change is significant. For example, Bequant, a Malta-based crypto trading service, is reconsidering its business strategy, which primarily revolved around exploiting Binance’s tiered fee system. CEO George Zarya indicated that the firm would now focus on main trading activities.

The modification not only affects the fee structure but also extends to the types of features available on Binance accounts, specifically those that provided certain users with undue advantages.

Although these upcoming changes are unrelated to the Link Plus interface redesign, they are part of Binance’s broader efforts to address potential misuse of its platform.

Compliance Efforts and Regulatory Challenges

On June 26, Binance urged its users to report any suspicious activities, including fee arbitrage or violations of its Know Your Customer (KYC) protocols, particularly concerning institutional accounts.

As part of its initiative to maintain platform integrity, Binance has promised rewards for users who report verified instances of policy infractions. In the broader context of regulatory compliance, Binance has faced significant challenges.

In November 2023, the exchange’s former CEO, Changpeng Zhao, reached a $4.3 billion settlement with the United States Department of Justice for breaches related to the Bank Secrecy Act and Anti-Money Laundering regulations.

Although Binance.US operates as a separate entity, it too has encountered regulatory difficulties. Recently, officials in North Dakota revoked the platform’s money transmitter license, prohibiting its operations within the state.

Furthermore, Binance decided to withdraw from the Nigerian market earlier this year following allegations by the Nigerian government of tax evasion and money laundering, which reportedly led to deficits in the local currency.

The platform also faced punitive measures in India, where it was fined $2.25 million by the Financial Intelligence Unit for allegedly violating Anti-Money Laundering standards.

These events highlight the challenges Binance faces as it navigates complex global regulations while striving to maintain a secure and compliant trading environment.