ASIC (Australian Securities and Investments Commission) launched legal proceedings against Binance Australia Derivatives. The commission accused the platform of misclassifying investors and depriving them of essential consumer protections.
Between July 2022 and April 2023, Binance classified over 500 retail clients—83% of its Australian customer base—as wholesale investors, according to the agency’s statement.
According to the regulator, Wednesday’s statement revealed that this error deprived these investors of important legal protections provided by Australian financial law and exposed them high-risk products.
According to Australian legislation, clients of retail stores are entitled consumer protections like a Product Disclosure Statement(PDS), Target Market Determination (“TMD”) and an access to a system for internal dispute resolution.
PDS outlines the benefits and risks associated with financial products. A TMD makes sure that only appropriate customers are offered products.
ASIC claims Binance has failed to implement these safeguards. This allowed clients to engage in complex and speculative crypto derivatives without the support they needed.
Binance is accused by the Australian regulator of violating multiple obligations including that it must operate honestly and efficiently under its Australian Financial Services License.
ASIC has also charged the platform with failing to adequately train their employees and violating its licensing conditions.
Binance, it was also claimed, failed to offer the necessary protections for investors. According to reports, the crypto exchange compensated clients affected by the hack with $13 million between 2023 and 2024.
Our team identified a small number of Australian users who were incorrectly classed as ‘Wholesale Investors’ on Binance.
We were obliged to close derivative positions immediately as per Australian law.
— Binance (@binance) February 23, 2023
Binance Compliance Systems – Sarah Court, ASIC Vice Chairperson. “woefully inadequate,” The misclassification exposes clients to high risk speculative financial products, without the appropriate protection.
"Crypto derivative products are inherently risky and complex, so it is critical that retail clients are classified correctly,” said Court. “Those classifications ensure they receive the required consumer protections, and the information required to make an informed investment decision.”
In response to these breaches, ASIC is seeking penalties, declarations, and adverse publicity orders.
Last April, the ASIC canceled the operating license for Binance Australia Derivatives, after a "Targeted review" of Binance that began in February.
The review was triggered after Binance publicly admitted to a client misclassification error on Twitter, writing “As per Australian regulation, we were required to inform these users and close any of their own derivative positions with immediate effect.”
“It has not yet reported these matters to ASIC in accordance with its obligations under its Australian Financial Services Licence," ASIC’s spokesperson told reporters that Decrypt.
In July 2023, the Australian regulator reportedly conducted searches at the exchange's local offices as part of its investigation into the now-defunct local derivatives business of the exchange.
ASIC is increasing its scrutiny of crypto. Last week, the agency fined Kraken's local operator $5.1 million for illegally offering margin trading to retail customers.
ASIC launched the INFO 225 Consultation Paper as a part of its regulatory initiative this month. ASIC will collect public feedback through the end of February 2025. New guidance should be released later that year.
Stacy Elliott is the editor.