Inside Binance — Eleanor Hughes and Steven McWhirter on Regulation, Compliance, and Growth

Ari Redbord (00:02):

I am Ari Redbord and this is TRM Talks. I'm global head of policy at TRM Labs. At TRM, we provide blockchain intelligence software to support law enforcement investigations and to help financial institutions and cryptocurrency businesses mitigate financial crime risk within the emerging digital asset economy. Prior to joining TRM I spent 15 years in the US federal government, first as a prosecutor at the Department of Justice, and then as a treasury department official where I worked to safeguard the financial system against terrorist financiers, weapons of mass destruction, proliferators, drug kingpins, and other rogue actors. On TRM Talks, I sit down with business leaders, policymakers, investigators, and friends from across the crypto ecosystem who are working to build a safer financial system. Today I sit down with Eleanor Hughes, general Counsel of Finance and Steven McWhiter, Binance's head of policy.

(01:00):

But first inside the lab where I shared data-driven insights from our blockchain intelligence team. I was a prosecutor in the early days of cell phones. I think the Motorola eraser and eventually blackberries as cell phones showed up in more and more of our cases from human trafficking to child exploitation, robberies to homicides. There was one investigator at the DC US attorney's office that would process the contents of those phones, the extraordinary John Marsh. John was a hero. In our cases, people will be lining up out the door to have John, this one excellent forensic investigator, move quickly to download evidence when time was of the essence. I spent countless hours next to John, often with the excellent MPD, detective Tim Palc, examining the content of those phones, finding clues, building cases. Phones are a treasure trove of information. They are, in some respects a complete reflection of the owner.

(01:51):

This is why I was so excited to announce TRM Lab's recent partnership with Magnet Forensics, a global leader in digital investigation solutions. This partnership will empower law enforcement and national security agencies to uncover critical blockchain evidence from seized devices analyzed in magnet forensics reports. Through this new partnership magnet will integrate capabilities from TRMs BLOCKINT API into its digital forensics workflows. This integration gives agencies investigating complex criminal enterprises a critical edge in tracking the rapid rise of illicit activity on the blockchain phones on which we hold Everything today, including our cryptocurrency wallets are critical for investigative leads in the midst of exigent circumstances, a kidnapping, a pig butchering incident, a terrorist attack. This partnership will allow investigators to move quickly when it is most critical. To learn more about the TRM Magnet partnership, go to our website at TRM labs.com/resources. Now I sit down with Eleanor and Steven, Eleanor Hughes, the General counsel of Binance, and Steven McWhorter, the global head of policy. Thank you so much and welcome to TRM Talks. Thank you.

Eleanor Hughes (03:07):

Thank you for having us.

Ari Redbord (03:08):

You really have amazing roles at what is the largest and one of the most significant cryptocurrency businesses in the world. Eleanor, tell me about your journey to the legal officer of Binance today.

Eleanor Hughes (03:20):

So I think like most people, I've had a longstanding interest in financial inclusion, and that started 20 odd years ago when I did my dissertation on micro at my thesis at university in India. And then after that I spent 15 years in private practice and I worked on some really interesting cases, really interesting clients, had the opportunity to travel all around the world. I worked in Paris, I worked in London, I worked in Hong Kong, I worked in Singapore. And then as I was on maternity leave for my second child, I was thinking about my career. I was thinking, what do I want to do next? I know disrespect to private practice lawyers, but I was thinking, is this it? And I did want to be somewhere where I was going to learn very quickly. I was going to learn about the industry and I was going to really be at the front and center of some of the key legal challenges. And I think this industry is unique in that for legal professionals, you really are front and center of the strategy for the company.

Ari Redbord (04:22):

It's amazing. When you think about going back to those university days and the work you did in microfinance or the work you did on taking on tough cases at law firm, how did that prepare you for this role?

Eleanor Hughes (04:33):

So I think when you're thinking about anything, I think you just always got to give it. So whether that's a case for one of the largest tech companies in China, or whether that's making sure that you've read absolutely everything with respect to microfinance in India before you go out to the Himalayas and do your ground research. So I don't think there's any kind of shortcut to putting in the work. I don't think there's any shortcut to putting in the work in this industry either.

Ari Redbord (05:02):

Steven Eleanor mentioned grappling with tough regulatory policy issues. That is you my friend. Tell me about your journey to the role that you have today. I love your sort of public private experience and I'm sure it really defines a lot of what you do at Binance. Yeah,

Steven McWhirter (05:17):

So I quite often say I'm a career regulator, and that's the easiest way to describe the fact that I've worked in regulation for a long time. And for those who don't know me, I've worked in financial services regulation in the UK at the FCA for about a decade. And during that time, it was exclusively literally in policy. And the great thing that that opportunity gave me was that I got involved in very, very many interest in policy initiatives both within the uk, Europe, and globally. And although it started off in what you would describe perhaps as the TradFi traditional rules and regulation, what we discovered the FCA in particular was the need to try and understand how to bridge with the new. So although I worked, as I say very extensively in traditional regulation and policy and across all areas, I moved into the kind of financial innovation area whilst at the FCA.

(06:14):

That gave me the opportunity to start to understand a bit more how existing rules work and how you apply them to new technologies. And during that time, I mean just to give a flavor of some of this stuff, the first cloud outsourcing guidance globally was put out by myself in 2016. I then worked very closely with colleagues on crypto guidance and distributed ledger technology guidance in 2017, 2019, big data and AI became quite a thing in 2020 for financial regulation as well as a big review in UK FinTech, which I think is the broader pitch. So I had a great opportunity towards the end of that. I was involved in managing the kind of strategy and engagement team for the financial innovation area of the FCA that included the secretariat of the global financial innovation network that's 80 regulated globally, all across from USA apac, middle East, Africa, la, and some fantastic colleagues. I mean, very many have since moved on to IMF, the Gates Foundation, meta the Biz Innovation hubs, your competitors, I wouldn't name them, but yeah, I mean it was a great foundation for this role.

Ari Redbord (07:30):

Yeah, no, it's absolutely fantastic. And I feel like I talked to a lot of policy folks in our space and it is all sort of different backgrounds, but you and Angela Hong on my team and others have this sort of deep background as a regulator. And I think there's sort of nothing that serves you better is sort of knowing how a regulator is thinking and trying to do their job when you're having those conversations. And I imagine that really informs the work that you do today.

Steven McWhirter (07:53):

Yeah, absolutely. I mean, primary role is to try and bridge that gap both in terms of understanding knowledge and just work. Everybody's trying to kind of in some respect achieve the same outcome. We all want a responsible industry that works well and is good for consumers and markets, et cetera. So having been on the other side, those objectives were very similar to the ones that I see in my day-to-day role now. So I think we're all in the safe place.

Ari Redbord (08:21):

Eleanor, I'd like to ask you both this question, but let me start with you here. As I mentioned, Binance is the largest cryptocurrency exchange in the world by volume, it's licensed in a number of different key jurisdictions. Everyone has a view of Binance in terms of its role in the broader ecosystem. What is your view of Binance? What role do you play in sort of broader crypto ecosystem today and beyond today to sort of the role do you believe will play?

Eleanor Hughes (08:44):

So I would say that the two most important things that we focus on at Binance are protecting and delivering for our users and ensuring that we set standard for global compliance in the crypto sector. And we believe that the opportunities for growth are the intersection of those two objectives. So for example, if you're talking about security and markets valence, those are critical for a safe and level playing field. The users to trade and our investment in those two areas will continue over the years, and we believe that they will give us a massive competitive edge for both retail and institutional users, particularly as the sector continues to bring in new investors.

Ari Redbord (09:25):

Steven, how do you see the role of Binance today in the world?

Steven McWhirter (09:28):

I mean, you've touched on its scale, its influence, Ari, so that puts the business in a very unique role, and I think not in terms of just its responsibilities as a participant in this ecosystem, but in terms of how it potentially shapes the future of this whole industry. So I think it's really important that we demonstrate good market leadership responsibility, take that seriously, but also keep one eye on the big picture. It's more than a digital asset exchange, as is the industry. There's very many aspects, Web3, custody, institutional, TradFi, et cetera. So we need to be mindful of that overall ecosystem and make sure that we are playing our part in contributing to that in a responsible way. Because at the end of the day, this is a very, very big industry and it's growing and it's only going to continue to grow.

Ari Redbord (10:20):

Really. Well said. What do you see as sort of the key issues as you're whiteboarding and thinking out, Hey, this is what I want to tackle in 2025, this is what I want to talk to regulators about? What are those things?

Steven McWhirter (10:30):

Yeah, so I mean I would take the view that there's probably, from my perspective, there's obviously a lot happening and it's an ever changing sequence, so to speak. But at the very basic level, that kind of support and advocation for clear consistent regulation, that's really important. The need for us to collaborate, educate users, and not in an arrogant way, but it's a big company with a lot of knowledge and expertise internally. And if we can use that to support institutions, regulators, the TradFi industry as this evolves, then great. I'm all for that. In the context of the ongoing policy priorities. I mean, they're different across markets. We've obviously got the global picture, you've got your G 20, your fat F, your F, S, B type considerations. You've then got levels of maturity in markets which differ greatly. The USA is on a journey at the moment as you're well aware, but the UK is also looking at what it should do in this space. And then when you look at APAC or the EU, they've been moving quite quickly in previous years. So to some extent their frameworks are in a different place. So I think the maturity of the regulators and what's happening in the markets globally is very, very different. But ultimately what we want is good, clear, consistent regulation and to keep building the E was able, it's really extraordinary.

Ari Redbord (11:56):

And similarly in the legal space. Eleanor, I think you kind of got to this, I think one of the most exciting things about being a lawyer in this space is the fact that we're writing the textbooks today. I mean, the books that students are going to use on technology, on crypto, on blockchain Web3 are the law that's being created globally right now. When you look around the world and think about the legal issues that A, are important and B, really excite you right now to be a lawyer at the level you are in this space, what are those legal issues?

Eleanor Hughes (12:22):

So I think for me, there are many issues for us to consider at the moment. Everything is almost unprecedented. And as you can imagine, given the pace of regulatory change, ensuring that our business is compliant with new regulations in each of the jurisdictions we operate is one of our key focuses. So one of the challenges that we find is that sometimes the new legislation can be quite difficult to interpret, and we've seen with some major pieces of legislation that different exchanges have taken different approaches to that implementation. So we think it's very important for us to engage very early with regulators to understand how they are proposing to interpret that legislation. So you might have a legal opinion or any exchange have a legal opinion, which says technically you are able to do X and Y with respect to a particular issue, but that doesn't really matter if you have a regulator, for example, esma, which is going to issue guidance on that topic because you have to follow the guidance if you want to operate in that jurisdiction. So I think as with anything in this industry, there is a legal position, but there's a practical position as well.

Ari Redbord (13:25):

What's really interesting having you on together, you have both mentioned a lot like legal policy, regulatory issues. How do you work together on these things at Binance? Give me a little bit of the inside baseball and sort of the way teams work at Binance.

Eleanor Hughes (13:39):

Oh yeah. Steven and I have been working together for many years now. I remember when I first joined Binance and we were both collaborating with respect to consultation papers, and now we work together all the time. And I think we have multiple weekly calls as we discuss new legislation, new consultation papers, what it might mean, how it impacts Binance. I think most recently Steven's been looking quite closely at the US regulations.

Steven McWhirter (14:09):

Yeah, I mean, so interesting area. I work very closely with the legal team and there's a regulatory function within the legal team, which I work exceptionally closely, fully talented, passionate people who are spread around the world and have all got great knowledge and insight in the context of this industry and rules and regulations themselves. So it makes it very, very easy, but I think it works really well. The technology within the company itself allows us to collaborate very easily. So irrespective of where people are around the world, it's very, very simple for us to stay in touch and to work together on joint projects, et cetera. So I find it really easy, but I also think it's really important, this is perhaps where I came from at the FCA, because in the FCA, they've got a handbook which is very detailed if anybody's ever looked at it. It's got lots of rules, and those rules are drafted in collaboration with their regulatory lawyer.

Ari Redbord (15:09):

Eleanor, when we're talking about hot button issues in crypto today, a big one in the US at least is this sort of lack of access to banking. Would you talk a little bit about your view, Binance's view on the issue of banking access?

Eleanor Hughes (15:25):

Yeah, and I think like so many crypto companies, finance suffered from regulatory dysfunction in the United States over the past four years. So we were also victims of the practice of deep banking of crypto, which was the subject of multiple hearings on Capitol Hill this month. And we also got caught in regulatory tug of war between the SEC and the CFT C particularly. I think there was at one point both the SEC and the CFTC was seeking to assert jurisdiction over the BO OSD stable coin. We also suffered from the same harms as other exchanges when the SEC opted for enforcement actions over clear rules in the constructive engagement with the industry. And I think finally, and maybe most unique to finance, we seem to have been caught up in the regulatory dysfunction with respect to monitorships stemming from our US resolutions with DOJ and fin.

(16:20):

And I think this issue exemplifies the ways that the crypto industry was treated worse than other industries. So Binance agreed to the monitor provisions in its resolution with the clear expectation, understanding that we would have one monitor. And unfortunately, the agencies under the previous administration were unable to coordinate and appoint a single monitor. So instead, we now have two monitors with overlapping remits, which means there is two regulatory agencies essentially with overlapping remits doing the same thing. And I want to be really clear that I don't dispute the facts that underpin those resolutions, nor do I want to undermine the commitments that finance has made as part of those resolutions or our ongoing commitments to complying with terms of those plea agreements. But I do think it's interesting, noteworthy as we discuss the challenges of the previous administration and the promise under the Trump administration for crypto. Yeah,

Ari Redbord (17:20):

No, thank you for that. And what's sort of next from Binance's perspective, whether it's in the US or globally?

Eleanor Hughes (17:24):

So I think we have seen a broad spectrum of regulators engage and how they engage with crypto. So from my perspective, there's been some regulators that have engaged with us from the start. I remember when I first joined Binance 2021, and towards the end of that year we were engaging with the Dubai World Trade Center authority, and that was one of the first things that I was doing was negotiating an MOU with Dubai World Trade Center authority to create a crypto hub in Dubai. We signed that memorandum in December of that year. Next month they created a new regulator, which was Barra. And I really liked the way that they went about their approach to regulation because initially we got a provisional license and that was for spots. And in the meantime, they were in the process of drafting their rules and regulations and they really engaged with the community.

(18:21):

Obviously there are lots of different models. I don't think there's any rights or wrong answer, but I do think the key is collaboration with regulators. So you don't get a situation where regulators put in a new rule, which is very difficult for us to comply with operationally and strategically. So for example, in some jurisdictions, we've seen regulations where they've said, you must keep 97% of your assets in cold wallet when that's something that's very difficult for the business to comply with on an operational basis. So I think when I'm looking at all the different models of regulation around the world, I don't think there is a one pod size fits all. I don't think there is one way that's best, but I think the most important thing is that the way that those regulators collaborate with those in the industry and think about how their rules interact with other regulations and rules.

Ari Redbord (19:15):

Super, super thoughtful answer, Steven. I mean, this is your sweet spot. I'd love you sort of to get your perspective.

Steven McWhirter (19:20):

So it's a very, very fluid situation, Ari, but I do think of it in the context of the recognition and acceptance globally that this industry is here to stay. I think that's an important point. I think that became a power during the G20 presidency with India a year before last, and the FSB and IOSCO at that point, stepping in and introducing their global standards to guide and direct the regulatory community. So that was a bit of a eureka moment really in the sense that everybody's understanding that this industry's growing, it's here to stay likewise fat. They've been very active and done good work in this space as well. But then you get to, as I would describe it, and again from my days of all, and especially through the Gfin network where we worked with all the different regulators globally, everybody's at a different place at a different time on this journey. You'll be well aware that this was very much about a ML in terms of the standards that were introduced to this, but it's very much about consumer protection, market integrity as the kind of strands now, and each jurisdiction is at a slightly different place. But that said, everybody seems committed to moving forward and introducing rules that work. There's a tremendous amount of discussion and debate in the US and the primary focus there is in trying to get rules that work for the industry.

Ari Redbord (20:48):

Fantastic. I think a thread from both of you in this conversation is compliance. And it's not my fault. I'm usually the guy who always wants to talk about compliance issues, but this is totally you guys today, but I think one of the issues always around regulation is how do you sort of thread that needle between ensuring that you're staying innovative and building, but yet at the same time doing it in that sort of compliant type of way. How does Binance basically thread that needle balance, the need for compliance with its commitment to innovation?

Eleanor Hughes (21:18):

So I think one of the ways that we do that is ensure that we are collaborating with regulators and ensuring that we are making sure that we are meeting the standards that regulators require on an ongoing basis. So I think in many jurisdictions, regulators come to us or they ask us about how we are thinking about compliance, and often what we do is walk them through what we're doing and explain to them how we are monitoring market surveillance or how we are looking at some of these issues. It's very important that we maintain that relationship and maintain that trust.

Ari Redbord (21:59):

Steven, your thoughts when you're talking to regulators, policymakers about how to thread that needle,

Steven McWhirter (22:04):

It's no secret. There's been a lot of speculation and a lot of undesirable behavior and the work you do, you'll be very aware of that. There has been this haven for illicit finance in some respects, and these bad actors need to be identified, taken out of the industry. And I think that's been happening, which is great, but it does come from the maturing of the industry. It does come from clearer rules of the road for everybody understanding what their role is in this industry and what they are expected to do. And that means that we're moving towards a period in time, I suppose, that engagement with policy makers and with financial institutions, et cetera, we're able to get a standard of compliance and regulation in place, which works every, I think as a crypto native business, I think financial very much describe itself as that we obviously want to stay true to our roots. So I think there's a discussion that needs to happen around some of the broader aspects, Web3 D five for example, as well as ensuring that when it comes to payments or when it comes to financial inclusion, when it comes to compliance, et cetera, these are baked in. But there are so many different aspects to this industry, and there's a level of complexity here that needs a joint approach and it needs everybody to some extent to do their bit, but do it in a way that everybody can benefit from. Eleanor.

Ari Redbord (23:29):

Tell me something I don't know about the future of Binance.

Eleanor Hughes (23:33):

So I think we have obviously reached this inflection point where large financial institutions are increasing interested in crypto over the absolutely unprecedented, and I think what you'll see in the future is Binance collaborating with large financial institutions, having partnerships with large tech companies. Those are the exciting things that we are talking about at the moment.

Ari Redbord (23:59):

Fantastic. Steven, tell me something I don't know that's going to define the future of Binance. No pressure.

Steven McWhirter (24:04):

Well, I think probably can say it's certainly connected to a scalable blockchain infrastructure. You'll also have heard the terms keep building and bear and build markets, and it's certainly something that the business does. But education, onboarding, massive adoption, these are all things that the business cares deeply about as it does in the context of Web3. And that includes wallets, it includes decentralization. So I think although there are certainly things that everybody needs to be mindful of in terms of good regulation and making sure consumers and markets are treated fairly, there's a big, big industry here that's still in its infancy. The kind of aspects that we are involved in our Web3 wallets, there's so much that's happening inside the business, which is looking at how it can grow this industry for the future. It just makes it really, really exciting place to be. I'm being honest,

Ari Redbord (24:59):

You had this really extraordinary journey in terms of really spending significant time at a key regulator and then even more so getting to do sort of future of finance technology type of work. But what do you tell people when they reach out to you and sort of want to get into this space from more sort of a policy or regulatory perspective?

Steven McWhirter (25:16):

I mean, you either love it or you hate it. That's probably the first thing I'll say. It's not the kind of industry or job that you can do halfheartedly. You need to have a passion and an interest in what's actually happening in the industry and believe in to some extent the mission of the business and what the business is trying to achieve. And I think if you don't have that, then it's going to be very difficult to succeed in the business and remain in the business because it's a challenging industry. It's moving very fast, and you've got to have that enthusiasm and energy beyond that, I mean, I would say have a good appreciation of what's happening in the industry. Obviously it helps if you've bought in literally and you've got a wallet and you understand how the blockchain works. That's incredibly important because it demonstrates a level of interest and understanding, but it will move quickly. So that dust in some respects for knowledge and to keep learning is vitally important. I love that answer.

Eleanor Hughes (26:17):

I completely agree. I think it's one of the interview questions that I always ask candidates is, do you own crypto? Have you engaged with products? What do you think of our product? Because it's really important as lawyers be able to understand and explain our products and how they work and talk about them to regulators. And equally, we need to make sure that we understand where the risk areas are, how we can mitigate those risks. And if you don't engage with the products, you're not going to know where those risk areas are and how they work.

Ari Redbord (26:49):

I'm going to end with this. So you guys do hard things. I mean, there's no question about it. Some of the hardest things in our space. What do you do for fun?

Steven McWhirter (26:56):

Yeah, yeah. I mean, I would say I read a little, but usually that's work

Ari Redbord (27:01):

Enforcement actions and regulatory policy things that doesn't count. That's not the answer to this.

Steven McWhirter (27:07):

I mean, I've got family, my wife and I are out here, et cetera, et cetera. So on the downtime, we do social eggs, we get out there, we meet people, we just relax. We like to get out and try and explore the country. It's obviously a new part of the world for us, and it's just nice just to get out there, breathe some fresh air, go for walks and generally unwind to be quite frank, and just get some exercise.

Ari Redbord (27:33):

Love it. I am going to have to get you out for a TRM running club one of these days on our many adventures together. Eleanor, how about you?

Eleanor Hughes (27:41):

So I do have a four month old baby, so there's not a lot of time for hobbies.

Ari Redbord (27:47):

Finance is your easy job.

Eleanor Hughes (27:49):

Yes.

Ari Redbord (27:50):

Totally.

Eleanor Hughes (27:51):

But one of the things that I love to do is I love to go skateboarding and I love to go with my friends and my husband in Norway, put on the skins, hike up, have a beer at the top of the mountain, and then ski down away from everyone else, away from all the other tracks. It's an incredible experience.

Ari Redbord (28:08):

Thank you so much for joining TRM talks, both of you. This was an amazing conversation. Enjoyed it.

Eleanor Hughes (28:13):

Thank you so much.

Ari Redbord (28:19):

It is cool. Look, as I said, we've had a lot of, in our a hundred plus TRM talks, we've had a lot of policy leads and we've had a lot of general counsels and chief legal officers, but never had them together. And I think that what I got out of that was Binance is spending a lot of time bringing that regulatory expertise together with the legal team to really ensure that everything's coordinated and they're working really closely together. I also think that Eleanor was really forthcoming around the way Binance is leaning into compliance, sort of post us settlement and how they're thinking about building out compliance, but at the same time, ensuring that the conversations they're having with regulators and policymakers globally is not stifling innovation, which obviously has been a focus since the beginning. So look, I think no one is running from the fact that there are hard problems and there are challenges not just at Binance, but sort of in the broader space. But when you bring that sort of legal expertise and marry it up with a policy, you're creating legal precedent. You're creating sort of what policies will look like for the future of cryptocurrency, whether that's in Dubai, whether that's in Europe, whether it's in the United States. And having both of them together is sort of my big takeaway is that they're having those conversations internally, and I felt very much like we had sort of a front row seat to that conversation. Today.

(29:36):

On the next TRM talks, I sit down with Michael Greenwald, global Head of Financial and Digital Assets at Amazon Web Services. If you love the show, leave a review wherever you're listening to it and follow us on LinkedIn to get the latest news on crypto regulation, compliance, and investigations.

TRM Labs (29:57):

TRM talks is brought to you by TRM Labs, the leading provider of blockchain intelligence and anti-money laundering software. This episode was produced in partnership with Voltage Productions. The music for this show was provided by Eco. Now

Ari Redbord (30:14):

Let's get back to building.