The Federal Court has ordered Oztures Trading Pty Ltd (trading as Binance Australia Derivatives) (Binance) to pay a $10 million pecuniary penalty after misclassifying more than 85% of its Australian client base over a nine-month period, resulting in more than $12 million in losses and fees.
Binance is part of the Binance Group, the operator of the world’s largest digital crypto exchange by trading volume.
In a Statement of Agreed Facts, Binance admitted it exposed 524 retail investors to high-risk crypto derivative products without the required consumer protections between July 2022 to April 2023, due to their misclassification as wholesale clients.
Binance admitted to serious failures in client onboarding and poor staff training that allowed clients seeking to be verified as sophisticated investors to make unlimited attempts at a multiple-choice quiz until they achieved a passing score for Binance to assess them as qualifying for sophisticated investor status.
Additionally, Binance’s senior compliance staff provided inadequate oversight or review of client applications and supporting documentation, further weakening the onboarding and classification processes.
For example, Binance incorrectly assessed an individual as qualifying as a professional investor on the basis that the client certified that they were an ’exempt public authority’, without adequate verification.
This misclassified client group went on to incur $8.66 million in client trading losses and paid $3.89 million in fees.
In addition to the pecuniary penalty, Justice Moshinsky ordered Binance to contribute to ASIC’s costs.
The penalty comes in addition to approximately $13.1 million in compensation paid to the affected clients, which ASIC oversaw in 2023 (23-298MR).
In response to today’s outcome, ASIC Chair Joe Longo said, ‘Binance failed to set up basic compliance checks and incorrectly approved hundreds of applications for complex, wholesale investor products.
‘Binance’s shortcomings left more than 85% of their Australian customer base exposed to high-risk products they should have never been able to access, and without important consumer protections or rights, costing retail investors millions.
‘This wasn’t just a technical breach - it directly resulted in over $12 million in client losses.’
Binance admitted that between July 2022 to April 2023 it failed to comply with multiple obligations, including:
- provide a Product Disclosure Statement to retail clients
- make a Target Market Determination
- maintain a compliant internal dispute resolution system
- ensure financial services were provided efficiently, honestly, and fairly
- comply with Australian Financial Services (AFS) licence conditions, and
- adequately train and ensure competency of employees.
Mr Longo said, ‘This is a clear warning to global financial services entities looking to set up shop in Australia.
‘All financial services companies must follow the law from day one, and have proper client onboarding systems and processes in place. This includes financial services that relate to crypto and digital assets.’
Binance admitted to all contraventions alleged by ASIC in the civil proceedings initiated in December 2024 (24-283MR).
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Background
Binance Australia Derivatives is part of the global Binance group, the world’s largest digital cryptocurrency exchanges by trading volume with registered users across the globe.
In December 2022, ASIC began a targeted review of Binance’s financial services business, including its classification of wholesale clients. This resulted in ASIC issuing a notice of hearing under s915C of the Corporations Act 2001 to consider whether the AFS licence held by Binance should be cancelled or suspended. On 6 April 2023, ASIC cancelled the AFS licence in response to a request to cancel from the entity (23-091MR).
In 2023, ASIC oversaw the compensation payments of approximately $13.1 million to misclassified Binance clients (23-298MR).
Of the 524 misclassified clients:
- 460 were incorrectly classified as meeting the Sophisticated Investor Test
- 33 were incorrectly classified as meeting the Individual Wealth Test
- 26 did not provide sufficient evidence that they met and were incorrectly classified as meeting the Professional Investor Test
- 4 did not provide sufficient evidence that they met and were incorrectly classified as meeting the Related Body Corporate Test, and
- 1 did not provide sufficient evidence that they met and was incorrectly classified as meeting the Large Business Test.
ASIC has previously taken civil penalty proceedings against global digital asset exchange operator Bit Trade Pty Ltd (the operator of the Kraken crypto exchange in Australia) for design and distribution obligation failures, with the Federal Court ruling in favour of ASIC’s case (24-186MR).
ASIC Information Sheet 225 Digital assets: Financial products and services (INFO 225) provides guidance on when a digital asset related offering may be a financial product.
ASIC will continue to use its full range of regulatory and enforcement tools, such as guidance, licensing, compliance and enforcement action, to protect consumers and uphold market integrity in the digital asset sector.