The Australian Securities and Investments Commission (ASIC) has revoked Binance’s financial services license, as the world’s largest cryptocurrency exchange was found to have wrongly categorized numerous retail customers as wholesale investors earlier this year.
According to Joe Longo, the chair of ASIC, it is crucial to distinguish between retail and wholesale investors as the former are entitled to greater consumer protection under Australian legislation, such as the ability to access dispute resolution mechanisms.
Binance is authorized to offer derivative products only to sophisticated investors, not retail customers, under its Australian financial services (AFS) license.
“It is critically important that AFS licensees classify retail and wholesale clients in accordance with the law,”
“Retail clients trading in crypto derivatives are afforded important rights and consumer protections under financial services laws in Australia, including access to external dispute resolution through the Australian financial complaints authority.”
“Our targeted review of these matters is ongoing, including focus on the extent of consumer harms.”
Longo said
In November, Dr. Angel Zhong, an associate professor of finance at RMIT, pointed out that numerous investors may be unaware of the scope of AFSL coverage and mistakenly assume that cryptocurrency exchanges fall within its ambit, thereby enhancing the credibility of such companies.
Starting April 14th, Binance’s customers will no longer be able to open new derivative positions or increase existing ones, and any outstanding positions must be liquidated by April 21st.
Despite the cancellation of its financial services license, Binance will still be a member of the Australian Financial Complaints Authority until April 8th, 2024. Asic has consistently cautioned that a large number of cryptocurrency products and services remain unregulated, advising users to be prepared to incur losses in their investments.
“As we have said before, Asic supports a regulatory framework for crypto with a focus on consumer protection and market integrity. The final decision as to the regulatory settings is one for government,”
Longo said
Although Binance had been operating in Australia for a considerable period, its AFSL, which has now been revoked, was held by Oztures Trading, a company it acquired in the previous year.
Asic augmented its cryptocurrency team last year with a view to regulating additional digital assets by categorizing them as financial products, a step that would make their sale to Australians more challenging.
Binance and its CEO, Changpeng Zhao, are facing a lawsuit in the United States by regulators from the commodity market, who allege that the defendants willfully evaded US law.
The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Changpeng Zhao, the CEO of Binance, and three entities responsible for operating the Binance platform, alleging multiple violations of the Commodity Exchange Act and CFTC regulations. The complaint also accuses Binance’s ex-chief compliance officer, Samuel Lim, of aiding and abetting the company’s unlawful conduct. The action has been filed in a federal court in Chicago.
The complaint contends that Binance has expanded its US operations despite publicly declaring its intention to prohibit US customers from utilizing the platform.
Among the allegations outlined in the complaint is the assertion that Binance continued to instruct its most valuable US clients on ways to evade its compliance mechanisms, even after announcing restrictions on US customers.
