The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against Binance Australia Derivatives, a division of the global Binance group, alleging significant failures in customer protection. This marks the regulator’s latest action against operators in the speculative cryptocurrency market, following its recent win against another crypto giant.
ASIC’s lawsuit comes just a week after the Federal Court imposed an $8 million fine on U.S.-based Kraken for breaching compliance regulations. Between July 7, 2022, and April 2023—when Binance Australia voluntarily requested the cancellation of its Australian Financial Services (AFS) licence—the company offered crypto derivative products to 505 Australian retail investors who were allegedly misclassified as wholesale clients.
These misclassified clients accounted for 83% of Binance’s Australian customer base, with the company paying out $13 million in compensation to affected customers in 2023, according to ASIC.
ASIC Deputy Chair Sarah Court described Binance’s compliance systems as “woefully inadequate.”
“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,” Ms. Court said. “Crypto derivative products are inherently risky and complex, so it is critical that retail clients are classified correctly.”
The allegations against Binance include a range of compliance failures, such as not providing a product disclosure statement, neglecting to make a target market determination, lacking a compliant internal dispute resolution system, and failing to ensure that employees were properly trained and competent.
ASIC is seeking penalties, declarations, and adverse publicity orders in its case against Binance. The regulator first launched a targeted review of Binance’s financial services operations in December 2022. This review scrutinized Binance’s classification of wholesale clients and led to a notice of hearing to determine whether its AFS licence should be cancelled or suspended. Binance subsequently requested the cancellation of its licence.
Last week, Kraken commented on its own case, emphasizing the need for tailored crypto legislation to resolve ambiguities affecting Australian crypto businesses and investors.
“We believe these rulings significantly hamper growth in the Australian economy. We look forward to engaging constructively with policymakers and regulators as these rules are developed,” a Kraken spokeswoman said.
ASIC’s action against Binance comes as it seeks to introduce regulations for the crypto sector. In a recently released consultation paper, ASIC outlined plans to integrate crypto products into existing financial licensing frameworks. The regulator expects most crypto companies to apply for financial services licences and has proposed a grace period for compliance before court action is pursued.
Binance Group has yet to comment on the ongoing legal proceedings.