The Australian Securities and Investments Commission (ASIC) has taken legal action against Binance Australia Derivatives, alleging that the platform wrongly categorized retail investors and deprived them of vital consumer protections.
From July 2022 to April 2023, Binance labeled more than 500 retail clients—representing 83% of its Australian clientele—as wholesale investors, according to the agency’s statement. This oversight resulted in these investors losing important legal safeguards provided by Australian financial laws and being exposed to high-risk financial products, the regulator announced on Wednesday.
In Australia, retail clients are entitled to consumer protections like a Product Disclosure Statement (PDS), a Target Market Determination (TMD), and access to an internal dispute resolution mechanism. A PDS outlines the terms, benefits, and risks of financial products, while a TMD ensures that products are only marketed to suitable target audiences.
ASIC contends that Binance failed to furnish these protections, permitting clients to engage in speculative and intricate crypto derivative trading without sufficient assistance. The Australian regulator asserts that Binance breached various obligations, including the duty to operate with efficiency, honesty, and fairness in accordance with its Australian financial services license.
Furthermore, ASIC accused the platform of inadequately training its staff and disregarding the terms of its license. It also alleged that Binance’s internal systems did not provide the necessary safeguards for retail investors. Reportedly, the crypto exchange compensated affected clients with around $13 million in 2023.
ASIC’s Deputy Chair, Sarah Court, criticized Binance’s compliance systems as “grossly insufficient,” highlighting how the misclassification exposed clients to risky speculative products without the requisite safeguards. Court emphasized the inherent risks and complexities of crypto derivative products, underscoring the importance of accurate client categorization to ensure the provision of necessary consumer protections and information for informed investment decisions.
In response to these breaches, ASIC is pursuing penalties, declarations, and orders for adverse publicity. Last April, ASIC revoked Binance Australia Derivatives’ operating license following a targeted review that commenced in February.
The review was triggered by Binance’s public acknowledgment on Twitter of a client misclassification error, stating, “As per Australian regulation, we were required to inform these users and close any of their own derivative positions with immediate effect.” However, ASIC noted that Binance had not reported these matters in compliance with its obligations under its Australian Financial Services License.
In July 2023, ASIC reportedly conducted searches at the exchange’s local offices as part of its investigation into the now-defunct local derivatives business of the exchange. This legal action coincides with ASIC’s heightened scrutiny of the crypto sector, exemplified by the recent $5.1 million fine imposed on Kraken’s local operator for unlawfully offering margin trading to retail customers.
As part of its regulatory efforts, ASIC released the INFO-225 consultation paper this month, seeking public feedback until February 2025, with updated guidance slated for later release in the year.
Edited by Stacy Elliott.