Australia’s financial regulator has cancelled the local financial services licence of the world’s biggest cryptocurrency exchange, Binance.
Earlier this year, the Australian Securities and Investments Commission (Asic) found Binance had incorrectly classified hundreds of retail customers as wholesale investors.
The Asic chair, Joe Longo, said the distinction was important because retail customers have access to more consumer protections under Australian law, including the right to dispute resolution.
Binance’s Australia’s financial services (AFS) licence only allows it to provide derivatives products to sophisticated investors, rather than retail customers.
“It is critically important that AFS licensees classify retail and wholesale clients in accordance with the law,” Longo said.
“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.”
Dr Angel Zhong, an associate professor of finance at RMIT, said in November that many investors do not know what AFSLs cover and might assume it would cover cryptocurrency exchanges, giving the company more credibility.
“I think many have this impression that if [the company has] an AFSL … then [they’re] protected, but in fact they’re not really fully protected,” she said.
“[An] AFSL gives you the impression, especially for the general public, that it is legal, but what is legal is not the cryptocurrency, it is the general financial product they are otherwise providing.”
From 14 April, Binance clients will not be able to increase derivatives positions or open new positions. The exchange must close any remaining open positions by 21 April. Binance can remain a member of the Australian financial complaints authority until 8 April 2024.
Asic has repeatedly warned that many crypto products and services are not regulated and has urged crypto users to be prepared to lose any funds they invest.
“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.
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Binance has been operating in Australia for many years but its now cancelled AFSL was with Oztures Trading, a company it acquired last year.
Asic bolstered it cryptocurrency team last year as it looked to regulate more digital assets by classifying them as financial products, a move that would make selling them to Australians more difficult.
Binance and its chief executive, Changpeng Zhao, are being sued in the US by commodity market regulators in a complaint that claims the defendants committed “wilful evasion of US law”.
The Commodity Futures Trading Commission (CFTC) said it had filed a civil enforcement action in a federal court in Chicago, charging Zhao and three entities that operate the Binance platform with numerous violations of the Commodity Exchange Act and CFTC regulations. The complaint also charges Binance’s former chief compliance officer, Samuel Lim, with helping Binance commit the violations.
The complaint alleges that Binance has grown its US business despite publicly stating its intent to block US customers from accessing the platform.
Allegations in the complaint include a claim that even after announcing US restrictions Binance told its most valuable US customers how to avoid its compliance controls.