ASIC Files Lawsuit Against Binance Over Alleged Failure to Protect Retail Clients

The Australian Securities and Investments Commission (ASIC) has taken legal action against Binance Australia Derivatives, accusing the crypto exchange of failing to provide adequate consumer protection for retail clients. The lawsuit alleges Binance misclassified over 500 retail clients as “wholesale clients,” leaving them exposed to high-risk crypto assets without the safeguards mandated by Australian law.

Misclassification of Clients

Between July 7, 2022, and April 21, 2023, ASIC claims Binance wrongly categorized 83% of its Australian client base as wholesale clients. Unlike retail clients, wholesale clients do not receive critical consumer protections, such as product disclosure statements and access to compliant dispute resolution schemes.

ASIC Deputy Chair Sarah Court highlighted the consequences of Binance’s alleged actions, stating that many affected clients suffered significant financial losses. Binance has reportedly compensated impacted clients with approximately $13 million in payments during 2023.

Allegations of Regulatory Breaches

The regulatory body accuses Binance of multiple violations, including:

• Failing to determine an appropriate target market for its financial products.
• Lacking a compliant internal dispute resolution mechanism.
• Inadequate employee competency in assessing wholesale client eligibility.

ASIC argues these failures violated the requirements of Binance Australia’s financial services license, which was held until its cancellation in April 2023.

Legal Actions and Further Investigations

ASIC announced plans to seek penalties, declarations, and adverse publicity orders against Binance Australia Derivatives. Deputy Chair Court reiterated ASIC’s commitment to safeguarding consumers and maintaining market integrity in the digital asset sector, stating, “We are consulting with the sector to improve regulatory clarity and will continue to use the full range of regulatory tools to enforce compliance.”

Binance Under Scrutiny

Binance’s troubles with Australian regulators intensified earlier this year. On April 6, 2023, ASIC canceled Binance Australia Derivatives’ financial services license following a cancellation request from the firm.

In July 2023, ASIC launched a raid on Binance Australia’s derivatives division as part of an ongoing investigation into the company’s practices. The investigation was prompted by allegations that Binance had improperly classified retail investors as wholesale clients, depriving them of necessary consumer protections.

This lawsuit adds to the growing global regulatory challenges facing Binance as authorities around the world scrutinize its operations and compliance with local laws.