Like a closely monitored child complaining about a sibling who seems to get away with everything, Coinbase called out rival crypto exchange Binance in a filing with the U.S. Securities and Exchange Commission.

Staying compliant with a changing regulatory landscape in crypto was highlighted as a risk to its business by the leading crypto exchange in its S-1 form filed in the run-up before it becomes a publicly traded company. That compliance is particularly burdensome as the company has to compete with unregulated companies in other jurisdictions who seemingly escape enforcement, Coinbase said.

The company went as far as to single out by name Binance, perhaps Coinbase’s least-regulated and most formidable competitor.

“We also compete with a number of companies that solely focus on the crypto market and have varying degrees of regulatory adherence, such as Binance,” said Coinbase.

The soon-to-be-listed cryptocurrency exchange pointed out competitors that choose to operate in jurisdictions with less-stringent local rules are “potentially able to more quickly adapt to trends, support a greater number of crypto assets and develop new crypto-based products.” 

Due to limited enforcement by U.S. and foreign regulators, Coinbase continued, such companies are able to operate from offshore, while selling crypto exchange services and products to consumers in the U.S. and Europe, ignoring licensing requirements “seemingly without penalty.”

The Coinbase public filing also seemed to allude to the recent scrutiny of Tether, creator of the widely used stablecoin USDT. Coinbase mentioned its own role as a founding member of the Centre Consortium and the principal reseller of USDC, a stablecoin issued by Circle. Coinbase then highlighted that it is “periodically subject to audits and examinations by regulatory authorities,” a measure that will only now also be imposed on Tether and USDT.

Coinbase also cited anti-money laundering (AML) rules being imposed on crypto exchanges by the Financial Action Task Force, namely the so-called “travel rule” that is being skirted by certain firms in far-flung jurisdictions. 

“We may face substantial compliance costs to operationalize and comply with the Travel Rule and may be further subject to administrative sanctions for technical violations or customer attrition if the user experience suffers as a result,” Coinbase said. 

With regard to the creep of AML rules and user privacy, Coinbase specifically mentioned the Financial Crimes Enforcement Network (FinCEN’s) proposal in December 2020, that would require regulated exchanges to collect personal information from the owners of private self-custodied wallets, and report certain transactions to the federal government. 

“There are substantial uncertainties on how these requirements would apply in practice, and we may face substantial compliance costs to operationalize and comply with these rules,” Coinbase said.

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