2024-12-18 08:27 |
Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), announced on Wednesday that it has filed a lawsuit against Binance’s local derivatives business, alleging misclassification of retail customers as wholesale clients, thereby denying them consumer protections.
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.
Allegations on Binance’s unitThe watchdog has accused Binance Australia Derivatives of multiple regulatory failures during the period between July 2022 and April 2023. According to the ASIC, the cryptocurrency exchange failed to meet key obligations required under Australian financial laws. The allegations include:
Failure to Provide a Product Disclosure Statement: Binance did not issue a Product Disclosure Statement to retail clients, a fundamental requirement to ensure that investors understand the products they are being offered. Lack of Target Market Determination: The company failed to make a Target Market Determination, which helps ensure financial products are marketed only to suitable clients. Non-compliance with Internal Dispute Resolution Standards: Binance’s internal dispute resolution system was not compliant with Australian regulations, denying clients a structured mechanism to address grievances. Inefficient and Unfair Financial Services: The exchange allegedly did not take necessary steps to ensure that its financial services were delivered efficiently, honestly, and fairly. License Condition Violations: Binance is accused of not adhering to the conditions attached to its financial services license. Inadequate Employee Training and Competence: The company did not adequately train its employees or ensure their competence in providing financial services.The ASIC claims that Binance Australia Derivatives incorrectly classified 505 retail investors, representing approximately 83% of its local clientele, as wholesale clients between July 2022 and April 2023.
This misclassification allowed the company to offer crypto derivative products without adhering to the stricter consumer protection standards required for retail clients.
Binance’s troubles in AustraliaIn April 2023, the ASIC cancelled Binance Australia Derivatives’ financial services license after conducting a targeted review of the exchange.
Later, in November 2023, the regulator facilitated compensation of around A$13.1 million ($8.29 million) to 435 retail clients who were incorrectly categorised as wholesale clients.
“Crypto derivative products are inherently risky and complex, so it is critical that retail clients are classified correctly,” ASIC Deputy Chair Sarah Court said in a statement.
She added that such classifications ensure they receive the required consumer protections and the information needed to make an informed investment decision
ASIC stated that it will pursue penalties, declarations, and adverse publicity orders against Binance in the ongoing proceedings. The exchange has yet to comment on the lawsuit.
This legal action comes shortly after Australia’s federal court fined the local operator of another cryptocurrency exchange, Kraken, A$8 million following ASIC’s civil proceedings.
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