Australia appears to be auditing the operations of crypto exchanges to protect its citizens from financial risks. In a recent development, Binance has come under legal scrutiny for misclassifying 505 retail investors. This follows a legal challenge against Kraken just days earlier. Both Kraken and Binance are facing lawsuits from the Australian Securities and Investments Commission (ASIC), the regulator overseeing the country’s financial markets.
The ASIC has filed a lawsuit in federal court, accusing Binance’s local subsidiary of misclassifying 505 retail investors as wholesale investors. As a result, the exchange allegedly failed to provide the required consumer protection for these retail investors.
Retail crypto investors typically purchase smaller amounts of crypto assets, while wholesale investors are larger-scale entities, such as financial institutions or hedge funds. Consumer protection regulations for these two groups vary based on the volume and frequency of their crypto transactions.
As per an official statement from the ASIC, Binance was offering crypto derivative products to retail investors between July 7, 2022 and April 21, 2023.
Under Australia’s financial regulations, retail clients of licensed crypto exchanges must receive a product disclosure statement upon entering the ecosystem. Additionally, retail investors are entitled to a compliant dispute resolution scheme.
Commenting on the matter, ASIC Deputy Chair Sarah Court stated that Binance has violated the Australian laws it agreed to adhere to when applying for operational licenses in the country.
“Many of these clients suffered significant financial losses. In 2023, we oversaw compensation payments by Binance of approximately $13 million (roughly Rs. 110 crore) to affected clients. Crypto derivative products are inherently risky and complex, so it is critical that retail clients are classified correctly,” Court added.
According to ASIC, Binance failed to provide product disclosure statements to retail clients and did not implement a complaint resolution system.
Binance has yet to respond to the development.
Earlier this year, Australia imposed a $5.1 million fine (roughly Rs. 43 crores or AUD 8 million) on Kraken for violations related to the design and distribution of its products.