The question is whether the exchange's use of "reverse solicitation" fits the narrow exemption Europe's crypto law allows. ESMA says it should not be used to get around the rules. Binance says it complies.
Binance's application for a European crypto license was turned down earlier this year. Its European customers have not gone away, and regulators want to know why.
Binance's reliance on reverse solicitation to keep its EU customers is now under scrutiny from the European Securities and Markets Authority and from national supervisors, according to people familiar with the matter. Some supervisors have sent the exchange requests for information, those people said, and penalties up to and including fines are possible.
The exemption
Under the EU's Markets in Crypto-Assets Regulation, known as MiCA, a firm without a license may serve a client in the bloc only if the client approached the firm on its own initiative. That is reverse solicitation.
ESMA has made clear how tightly it reads the rule. The exemption "should be understood as very narrowly framed," the agency said, and should "not be used to circumvent MiCA requirements."
Binance said it complies with applicable rules and is "actively working toward becoming MiCA-authorised."
Why it matters
MiCA is meant to replace a patchwork of national registrations with a single license valid across the bloc. If a large exchange can keep operating without that license, the regime's reach is in question. If regulators act, the exchange's European business, and the trading volume that comes with it, is exposed.
No enforcement action has been announced.
Two readings
One reading is that this is routine supervision of a large exchange's transition. Regulators are asking questions, and Binance says it is working toward authorization, which would end the issue.
A second reading is that Europe is preparing to test MiCA on a prominent case. Information requests from more than one regulator may point to coordination, and a fine would show whether the exemption can be relied on at scale.
The next step
Any formal finding or penalty from a national regulator, or a new MiCA application from Binance, would move the story from inquiry to outcome.