The Australian Securities and Investments Commission (ASIC) said Wednesday that it had commenced court action against Binance Australia Derivatives, the Australian branch of the cryptocurrency exchange, for allegedly failing to provide retail clients with satisfactory consumer protections by incorrectly classifying them as wholesale clients.
According to ASIC’s press release dated Dec. 18, it claims that more than 500 retail clients with Binance were classified incorrectly as ‘wholesale clients’, a high-risk category that allowed them to deal in high-risk ‘cryptocurrencies’ without proper safeguards.
Under Australian financial services laws, firms must provide retail clients with a copy of a compliant product disclosure statement and access to a compliant dispute resolution system. ASIC says Binance failed to meet these obligations for 83 percent of its Australian client base between July 7, 2022, and April 21, 2023.
ASIC Warns of Serious Repercussions for Binance
‘Many of these clients suffered significant financial losses,’ ASIC Deputy Chair Sarah Court said, adding that Binance’s actions will have serious repercussions. For example, we also saw Binance compensate affected clients to the tune of $13 million in 2023.”
ASIC also accused Binance of misconduct in failing to make a target market determination, have a compliant internal dispute process system in place during the wholesale client assessments, and make sure it’s employees were competent in the provision of financial services.
Binance Australia is to face penalties, declarations, and adverse publicity orders from ASIC. “We are talking with the sector about greater clarity with regard to regulation, and ASIC will ensure that we continue to rely on all available regulatory and enforcement tools in this space to protect consumers and maintain market integrity in this emerging space,” Court said.
This comes after ASIC revoked the Australian Financial Services (AFS) license of Binance Australia, which it did on April 6, 2023, on its own initiative after the firm made an application for the cancellation of the license. Authorities in Australia raided Binance Australia’s derivatives division office in July because of an investigation into claims the exchange improperly classified retail clients.
Concerns that Binance’s practices made retail clients whose protection is legally higher subject to unseemly financial risk spelt out due to the investigation to begin.
It highlights the increasing scrutiny that cryptocurrency exchange face globally and underscores the importance of compliance with local financial laws to protect consumers in the increasingly digital and illiquid world of digital assets.
