Australia appears to be auditing the operations of cryptocurrency exchanges to protect its citizens from financial risks. Recently, Binance came under legal scrutiny for misclassifying 505 retail investors. A few days ago, Kraken faced a legal challenge. Both Kraken and Binance face lawsuits from the Australian Securities and Investments Commission (ASIC), the regulator that oversees the country’s financial markets.
ASIC has filed a lawsuit in the Federal Court accusing Binance’s local subsidiary of misclassifying 505 retail investors as wholesale investors. As a result, the exchange allegedly failed to provide required consumer protections to these retail investors.
Retail crypto investors typically purchase small amounts of crypto assets, while wholesale investors are larger entities such as financial institutions or hedge funds. Consumer protection regulations for these two groups will vary depending on the volume and frequency of their cryptocurrency transactions.
According to ASIC’s official statement, Binance will provide cryptocurrency derivatives products to retail investors from July 7, 2022 to April 21, 2023.
Under Australian financial regulations, retail customers of licensed cryptocurrency exchanges must receive a product disclosure statement when entering the ecosystem. In addition, retail investors are entitled to compliant dispute resolution.
Commenting on the matter, ASIC deputy chair Sarah Court said Binance violated the Australian laws it agreed to abide by when applying for an operating license in Australia.
“Many of these customers suffered significant financial losses. In 2023, we oversaw Binance paying approximately $13 million (approximately Rs. 110 crore) in compensation to affected customers. Crypto derivatives are inherently risky and complex, so it is correct Segmenting retail customers is critical.
According to ASIC, Binance failed to provide a product disclosure statement to retail customers and failed to implement a complaints resolution system.
Binance has yet to respond to the development.
Earlier this year, Australia fined Kraken $5.1 million (approximately 430 million rupees or AU$8 million) for violations related to product design and distribution.