The world’s largest cryptocurrency exchange can no longer legally operate within Australia after financial regulator ASIC cancelled the firm’s financial services license due to policy breaches that left consumers financially exposed.
Although it was licensed to sell financial derivatives to wholesale customers, Binance Australia Derivatives – the trading name of Oztures Trading Pty Ltd – was found to have been selling the products to hundreds of retail customers while inaccurately classifying them as wholesale customers.
Binance asked ASIC to cancel its license after it was served with a 29 March notice that the financial regulator had flagged irregularities in the company’s operations, and would be holding a hearing to consider whether its licence should be cancelled or suspended.
“It is critically important that AFS licensees classify retail and wholesale clients in accordance with the law,” ASIC chair Joe Longo said in a statement as the cancellation was announced.
“Retail clients trading in crypto derivatives are afforded important rights and consumer protections under financial services laws in Australia… Our targeted review of these matters is ongoing, including focus on the extent of consumer harms.”
One of the issues of concern is whether customers had access to external dispute resolution through the Australian Financial Complaints Authority – a capability offered to retail but not wholesale clients.
Other rights afforded to retail clients include access to the licensee’s internal dispute resolution systems; general advice warnings and statements of advice where personal advice is given; product disclosure statements and financial services guides; obligations to market and distribute financial products with a “customer-centric approach”; and more.
By misclassifying its retail clients, Binance was effectively depriving them of these consumer protections – a particular problem in a “risky and complex” cryptocurrency market in which, ASIC said, “crypto users should be prepared to lose any funds they invest in crypto.”
Tightening the regulatory screws
Cancellation of Binance Australia Derivatives’s license means clients of the company – the world’s largest cryptocurrency exchange by a factor of 10 over the number-two Coinbase Exchange – will be forced to close their derivative positions before 21 April, when any remaining open positions will be closed.
It’s not the first time ASIC has cracked down on cryptocurrency operators: in the last quarter of 2022 alone, the firm commenced civil proceedings against BPS Financial, Block Earner, and Finder Wallet for offences including conducting “unlicensed conduct”, alleged misleading statements, and inadequate risk disclosure.
It’s also not the first time Binance has faced regulatory concerns: indeed, the company was recently targeted by the US Commodities Futures Trading Commission (CFTC), which called time on the “intentionally opaque common enterprise” and accused Binance founder Changpeng Zhao and former chief compliance officer Samuel Lim with knowingly disregarding that country’s Commodity Exchange Act (CEA) and “engaging in a calculated strategy of regulatory arbitrage to their commercial benefit” by, among other things, not requiring clients to provide identification.
Binance was also instructing employees to use a messaging application that would automatically delete written communications – a practice that, the CFTC alleges, “was to avoid leaving any evidence of their efforts to retain US-based customers.”
Executives were actively working “to both keep the money flowing and avoid compliance,” CFTC chairman Rostin Behnam said, citing emails and chat transcripts that, he said, confirm Binance compliance efforts “have been a sham” and document the executives’ ongoing efforts “to place profits over following the law”.
Binance shares dropped by nearly 7 per cent after the CFTC announcement.
ASIC is ready to regulate crypto, Longo said in expressing a desire for a regulatory framework “with a focus on consumer protection and market integrity.”