Key Takeaways
- ASIC alleged that between July 2022 and April 2023, Binance wrongly classified 505 Australian retail investors
- Binance has reportedly compensated affected clients with approximately $13 million in 2023
The Australian Securities and Investments Commission (ASIC) has filed a lawsuit against Binance Australia Derivatives, alleging that the company misclassified over 500 retail investors as wholesale clients. The regulator stated that the misclassification denied the investors key consumer protections under Australian financial services laws.
ASIC further alleged that between July 2022 and April 2023, Binance wrongly classified 505 Australian retail investors, accounting for 83% of its client base, as wholesale clients.
Retail investors trading financial products such as crypto derivatives are entitled to protections including access to product disclosure statements, internal dispute resolution schemes, and compliance with design and distribution obligations. These safeguards are not provided to wholesale clients, who are considered more experienced and financially knowledgeable.
ASIC Deputy Chair Sarah Court criticized Binance’s practices, stating that the exchange failed to implement adequate compliance systems. She noted that many of the affected clients were exposed to high-risk products without the proper consumer protections, leading to significant financial losses. Binance has reportedly compensated affected clients with approximately $13 million in 2023.
The legal filing outlines several alleged breaches by Binance, including failing to provide necessary disclosure statements to retail clients, not making target market determinations, and lacking adequate dispute resolution systems. ASIC further accused Binance of not ensuring that its services were delivered efficiently, honestly, and fairly, as required by its Australian financial services license.
This legal action comes as part of ASIC’s broader efforts to regulate the crypto market. Earlier this month, the regulator released a consultation paper aimed at clarifying how existing financial product rules apply to digital assets.
In a separate case, ASIC recently penalized crypto exchange Kraken, for offering unlawful margin products, which resulted in losses exceeding $5 million for its clients. The regulator has further updated its guidelines for financial services firms managing client assets, including stricter requirements for cryptocurrency custody and risk management.
ASIC’s Deputy Chair emphasized the importance of protecting consumers and maintaining market integrity. She noted that many digital assets and related products already fall under current financial product definitions. ASIC is consulting with the industry to provide clearer guidance and will continue using its regulatory tools to address risks in the sector.
This lawsuit follows ASIC’s decision in April 2023 to cancel Binance’s Australian financial services license after identifying compliance issues during a review.
