In a strategic shift aimed at preserving its operational rights within the European Union, Binance France has announced the replacement of its co-founder Changpeng Zhao with two new shareholders, Yulong Yan and Lihua He. This significant reorganization comes as a direct consequence of Zhao's legal troubles and is part of a broader effort to adapt to the upcoming Markets in Crypto-Assets (MiCA) regulation era.

Background of the Shift

Changpeng Zhao, widely recognized as CZ, pleaded guilty to violating US banking laws in November of the previous year, which posed a direct threat to Binance's licensing in the EU. Under French law, a criminal cannot hold the majority stake in a company, and Zhao owned 100% of Binance France, the cryptocurrency giant's central hub in the EU. The restructuring was imperative to prevent Binance from losing its foothold in France, the EU's second-largest economy.

Details of the New Shareholders

The two new shareholders, Yulong Yan and Lihua He, each now hold a 50% stake in Binance France. Yan, also known by his English name Allan Yan, was part of the Binance founding team and is mentioned in the original Binance whitepaper. Prior to joining Binance, Yan co-founded and served as the product director at Bijie Tech, a Chinese exchange services company that was shut down by the Chinese government in March 2017.

Lihua He, on the other hand, is not mentioned in the Binance whitepaper and remains a more enigmatic figure. The company has not disclosed much information about He's background or role within the company, and declined to comment on whether Zhao was compensated for his shares.

This shareholder swap is a clear indication that Binance is attempting to move past the controversies associated with the Zhao era. In November last year, Binance faced significant legal repercussions when it pleaded guilty to charges related to violating US banking laws, which included allowing sanctioned entities and individuals involved in criminal activities to utilize the platform. Following these events, Zhao was sentenced to four months in prison, and Binance was fined $4.3 billion. To address these issues, Binance agreed to appoint court-approved independent monitors and enhance its anti-money laundering and know your customer practices.

MiCA and Future Prospects

The shareholder changes are also strategically aligned with the forthcoming MiCA regulation, which facilitates the "passporting" of licenses across the 27-member EU bloc. This regulation, set to be fully implemented within the next two years, is expected to boost investment in the digital assets industry in Europe. Binance’s choice of France as its strategic hub is crucial, given the country's significant role in the company’s European operations, including a €100 million investment in the French crypto industry in 2021.

Despite these positive steps, Binance continues to face regulatory scrutiny. The company is currently under investigation by French prosecutors for potential money laundering and for advertising activities conducted prior to official registration. These issues cast a shadow of uncertainty over whether Binance will successfully secure a MiCA-compliant license when stricter regulations for exchanges are enforced in 2025.

Conclusion

Binance's decision to replace Changpeng Zhao with Yulong Yan and Lihua He as shareholders of its French entity is a pivotal move designed to ensure compliance with stringent EU regulations and to safeguard its market position in Europe. As the crypto industry continues to evolve amid increasing regulatory demands, Binance’s proactive adjustments in its leadership and operational strategies highlight its commitment to maintaining a robust and compliant international presence.