On Wednesday, the Australian Securities and Investments Commission (ASIC) filed a lawsuit against a local subsidiary of the world’s largest crypto exchange, Binance, stating that it was imperiling everyday customers using its platform by misclassifying over 500 retail investors as wholesale clients – a classification that affects more than 80% of Binance Australia’s customers.
"Our case alleges Binance’s compliance systems were woefully inadequate,” the Australian commission said.
Between July 2022 to April 2023, the exchange classified more than 500 retail investors as 'wholesale clients,' allowing them to trade crypto derivative products.
After reviewing Binance Australia Derivatives' customer classification practices in 2022, ASIC formally canceled the company's financial services license in April 2023.
Under Australian laws, retail investors have the right to clear information and a complaints process. Binance was also legally required to check if its platform was appropriate for customers – a step the ASIC said the exchange avoided carrying out.
Last year, the U.S. Justice Department, Treasury Department, and Commodity Futures Trading Commission reached a nearly $3 billion settlement with Binance and its former CEO Changpeng Zhao over numerous violations of the Commodity Exchange Act (CEA), CFTC regulations, the Bank Secrecy Act, the International Emergency Economic Powers Act, and sanctions violations. Other violations included evasion of U.S. law and a failure to register as a money-transmitting business.
“Binance’s activities undermined the foundation of safe and sound financial markets by intentionally avoiding basic, fundamental obligations that apply to exchanges, all the while collecting approximately $1.35 billion in trading fees from U.S. customers,” said CFTC chairman Rostin Behnam.
“American investors, small and large, have demonstrated eagerness to incorporate digital asset products into their portfolios," Behnam said. "It is our duty to ensure that when they do so, the full protections afforded by our regulatory oversight are in place, and that illegal and illicit conduct is swiftly addressed.”