The Australian Securities and Investments Commission (ASIC) has alleged that from 7 July 2022 to 21 April 2023, Oztures Trading Pty Ltd, trading as Binance Australia Derivatives (Binance), offered crypto derivative products to 505 Australian retail investors who were misclassified as wholesale clients, representing 83 per cent of its Australian client base.
Unlike wholesale clients, retail clients trading financial products such as cryptocurrency derivative products are afforded consumer protections under Australian financial services laws.
“These include the requirement to be provided with a product disclosure statement and access to a compliant dispute resolution scheme,” ASIC said.
“In addition, Binance was required to make a target market determination under design and distribution obligations.”
According to ASIC deputy chair Sarah Court, Binance allegedly failed to ensure that the services it provided under its Australian financial services licence were provided efficiently, honestly and fairly.
“Our case alleges Binance’s compliance systems were woefully inadequate and exposed more than 500 clients to high-risk, speculative products without the right consumer protections in place. Many of these clients suffered significant financial losses. In 2023, we oversaw compensation payments by Binance of approximately $13 million to affected clients,” Court said.
“Crypto derivative products are inherently risky and complex, so it is critical that retail clients are classified correctly. Those classifications ensure they receive the required consumer protections, and the information required to make an informed investment decision.”
ASIC alleged that during the relevant period, Binance failed to:
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Give a product disclosure statement to retail clients.
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Make a target market determination.
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Have a compliant internal dispute resolution system.
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Do all things necessary to ensure that its financial services were provided efficiently, honestly and fairly.
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Comply with the conditions of its licence.
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Ensure that its employees were adequately trained and competent.
“Many digital assets and related products are financial products under the current law. We are consulting with the sector to improve regulatory clarity, and ASIC will continue to use the full range of regulatory and enforcement tools to safeguard consumers and uphold market integrity in the digital asset sector,” Court said.
ASIC said it will be seeking penalties, declarations and adverse publicity orders.
Binance Australia Derivatives is part of the global Binance group, which the regulator said is one of the world’s largest digital cryptocurrency exchanges by trading volume with registered users across the globe.
In December 2022, ASIC began a targeted review of Binance’s financial services business, including its classification of wholesale clients.
On 6 April 2023, ASIC cancelled the AFS licence in response to a request to cancel from the entity. It then oversaw the compensation payments of approximately $13.1 million to reported misclassified Binance clients.
Earlier this month, Bit Trade, the Australian operator of the Kraken crypto exchange, was ordered to pay $8 million for unlawfully issuing a credit facility to more than 1,100 Australian customers.
