Australian Securities & Investment Commission Files Lawsuit Against Binance for Offering Crypto Derivative Products & Misclassifying 505 Retail Investors as Wholesale Clients Representing 83% of Australia Clients from 2022 to 2023, Misclassification Denied Investors Consumer Protection Rights, Binance Paid AUD 13 Million Compensation to Affected Clients in 2023
18th December 2024 | Hong Kong
The Australian Securities & Investment Commission (ASIC) has filed a lawsuit against Binance Australia Derivatives for offering crypto derivative products & misclassifying 505 retail investors as wholesale clients representing 83% of Australia clients from 2022 to 2023, with the misclassification denying investors consumer protection rights. In 2023, Binance paid AUD 13 million compensation to affected clients. ASIC (18/12/24): “ASIC sues crypto company Binance Australia Derivatives for consumer protection failures. More than 500 retail clients of Oztures Trading Pty Ltd, trading as Binance Australia Derivatives (Binance), were denied important consumer protections after being misclassified as wholesale clients, ASIC alleges in documents filed in the Federal Court. ASIC alleges from 7 July 2022 to 21 April 2023, Binance offered crypto derivative products to 505 Australian retail investors who were misclassified as wholesale clients, representing 83% of its Australian client base. Retail clients trading financial products, in this case, crypto derivative products, have important rights and 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. In addition, Binance was required to make a target market determination under design and distribution obligations … … ASIC will be seeking penalties, declarations and adverse publicity orders.” More info below:
“ Australian Securities & Investment Commission Files Lawsuit Against Binance for Offering Crypto Derivative Products & Misclassifying 505 Retail Investors as Wholesale Clients Representing 83% of Australia Clients from 2022 to 2023, Misclassification Denied Investors Consumer Protection Rights, Binance Paid AUD 13 Million Compensation to Affected Clients in 2023 “
ASIC Deputy Chair Sarah Court: “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. 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 alleges Binance, in the period July 2022 to April 2023, failed to:
- give a Product Disclosure Statement to retail clients
- make a Target Market Determination
- have a compliant internal dispute resolution system
- do all things necessary to ensure that its financial services were provided efficiently, honestly and fairly
- comply with the conditions of its licence, and
- ensure that its employees were adequately trained and competent.
Background –
- Binance Australia Derivatives is part of the global Binance group, 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. This resulted in ASIC issuing a notice of hearing under s915C of the Corporations Act 2001 to consider whether the Australian financial services (AFS) licence held by Binance Australia Derivatives should be cancelled or suspended. On 6 April 2023, ASIC cancelled the AFS licence in response to a request to cancel from the entity (23-091MR).
- In 2023, ASIC oversaw the compensation payments of approximately $13.1 million to reported misclassified Binance clients (23-298MR).
- Under the Corporations Act 2001, AFS licensees are required to provide retail clients with important consumer rights and protections, including but not limited to, a Product Disclosure Statement (PDS), and a Target Market Determination (TMD).
- The design and distribution obligations require issuers and distributors to have a consumer-centric approach to designing, marketing and distributing financial products. In particular, firms must design financial products that meet the likely objectives, financial situation and needs of the target consumer for whom they are intended. Firms must also take reasonable steps that are reasonably likely to result in the distribution of their financial products to be directed and limited to the defined target market.
- ASIC has previously taken civil penalty proceedings against global digital asset exchange operator Bit Trade Pty Ltd (the operator of the Kraken crypto exchange in Australia) for design and distribution obligation failures, with the Federal Court ruling in favour of ASIC’s case (24-186MR).
- ASIC’s Moneysmart website has information for consumers about the risks of investing in crypto assets.
Australian Securities & Investment Commission Files Lawsuit Against Binance for Offering Crypto Derivative Products & Misclassifying 505 Retail Investors as Wholesale Clients Representing 83% of Australia Clients from 2022 to 2023, Misclassification Denied Investors Consumer Protection Rights, Binance Paid AUD 13 Million Compensation to Affected Clients in 2023
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