The Australian Securities and Investments Commission (ASIC) has launched legal action against Binance Australia Derivatives, accusing the crypto trading platform of misclassifying over 500 retail clients as wholesale investors.
According to ASIC’s press release, Binance’s misclassification allegedly stripped clients of vital consumer protections under Australian financial laws, prompting a lawsuit that could have significant repercussions for the platform’s operations in Australia.
The legal action targets the crypto exchange’s conduct between July 2022 and April 2023, alleging that the platform wrongly classified 505 retail investors as wholesale clients. These 505 clients, making up 83% of Binance Australia’s user base, were denied access to crucial consumer rights and protections that retail clients are entitled to under Australian law.
Binance Australia’s regulatory failures and legal violations
Per ASIC’s laws, retail clients trading crypto derivative products are legally entitled to a Product Disclosure Statement (PDS), access to a compliant dispute resolution scheme, and a Target Market Determination (TMD).
However, ASIC claims the crypto exchange failed to provide these protections, allowing clients to trade high-risk, speculative products without proper safeguards. As a result, many of these clients reportedly suffered substantial financial losses.
ASIC’s legal filing outlines several key violations that the exchange allegedly committed during the period in question. These include failing to ensure that its financial services were delivered efficiently, honestly, and fairly and failing to comply with the conditions of its Australian financial services license.
The crypto exchange is also under scrutiny for not adequately training its employees to handle compliance matters.
ASIC’s Deputy Chair, Sarah Court, emphasized the seriousness of the violations, stating that Binance’s “compliance systems were woefully inadequate” and that the platform exposed more than 500 clients to unregulated financial risks.
She highlighted that the mishandling of these retail clients’ classifications contributed to the significant financial losses many experienced.
ASIC and Binance Australia’s tense relationship
The legal action follows a targeted review by ASIC into the crypto exchange’s Australian financial services operations. In December 2022, the regulator began scrutinizing Binance’s classification of clients.
This led to the issuance of a hearing notice under the Corporations Act 2001, aimed at considering the suspension or cancellation of Binance’s Australian financial services (AFS) license. The leading crypto exchange ultimately requested the license’s cancellation, which ASIC granted in April 2023.
In addition to the lawsuit, ASIC has been overseeing compensation payments to affected clients. In 2023 alone, the regulator facilitated the return of approximately $13.1 million to clients who were misclassified and deprived of consumer protections.
Binance faces additional legal challenges
The lawsuit is just one of several legal hurdles currently facing Binance. The crypto exchange is also embroiled in a legal battle with the estate of the collapsed crypto exchange FTX. In November, FTX filed a lawsuit against Binance and its CEO, Changpeng Zhao, alleging that a 2021 share deal between the companies was fraudulent.
The FTX estate claims that Binance and Zhao, along with others, sold a 20% stake in FTX and an 18.4% stake in its U.S. entity, West Realm Shires, back to the company in a transaction allegedly funded by FTX’s Alameda Research division.
The lawsuit accuses Binance of facilitating the deal using Binance’s exchange tokens and dollar-pegged stablecoin, totaling at least $1.76 billion.
Moreover, the crypto exchange is also trying to fend off allegations of IP theft from Peanut the Squirrel owner Mark Longo, who claims the exchange of using his trademark without authorization.
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