Australia Securities Regulator Sues Binance Over Alleged Consumer Safeguard Failures

The Australian Securities and Investments Commission (ASIC) has launched legal proceedings against Binance Australia Derivatives, accusing the platform of misclassifying retail investors and denying them vital consumer protections.

Between July 2022 and April 2023, Binance classified more than 500 retail customers – 83% of its Australian customer base – as wholesale investors, according to the agency’s report. statement.

The error deprived these investors of crucial legal protections under Australia’s financial laws and exposed them to risky financial products, the regulator said on Wednesday.

Under Australian regulations, retail customers are entitled to consumer protections such as a Product Disclosure Statement (PDS), a Target Market Determination (TMD) and access to an internal dispute resolution system.

PDS describes the conditions, benefits and risks of financial products, and a TMD ensures that products are only offered to the right target group.

ASIC claims Binance has failed to provide these safeguards, allowing customers to trade speculative and complex crypto derivatives without adequate support.

The Australian regulator alleges that Binance has breached multiple obligations, including its duty to operate efficiently, fairly and honestly under its Australian financial services license.

ASIC also accused the platform of failing to adequately train its employees and neglecting the terms of its license.

It also alleged that Binance’s internal systems failed to provide the protections retail investors need. The crypto exchange is said to have compensated affected customers with approximately $13 million by 2023.

ASIC vice-president Sarah Court described Binance’s compliance systems as “woefully inadequate”, noting how the misclassification exposed customers to high-risk speculative products without appropriate safeguards.

“Crypto derivatives are inherently risky and complex, so it is crucial that retail clients are correctly classified,” the Court said. “These ratings ensure that they receive the consumer protections required, and the information needed to make an informed investment decision.”

In response to these breaches, ASIC is seeking sanctions, declarations and adverse publicity orders.

Last April, the ASIC canceled the operating license for Binance Australia Derivatives, following a “targeted review” of Binance that began in February.

The review was triggered after Binance publicly admitted on Twitter that there had been a customer misclassification. to write “Under Australian regulations, we were required to inform these users and close all their own derivatives positions with immediate effect.”

“It has not yet reported these matters to ASIC in accordance with its obligations under its Australian Financial Services License,” an ASIC spokesperson later said. Declutter.

In July 2023, the Australian regulator reportedly conducted searches of the exchange’s local offices as part of its investigation into the exchange’s now-defunct local derivatives business.

This lawsuit comes amid ASIC’s increasing scrutiny of the crypto sector. Last week, the agency fined Kraken’s local operator $5.1 million for illegally offering margin trading to retail customers.

As part of its regulatory initiatives, ASIC introduced the INFO-225 consultation document this month. Public feedback will be collected through February 2025, with updated guidance to be released later this year.

Edited by Stacy Elliott.