Regulator Investigates Binance Australia's Derivatives Business

The Australian Securities and Investments Commission (ASIC) is reviewing the derivatives services of Binance Australia after the crypto exchange closed the derivatives positions of false classification of several users as "wholesale investors."

Binance Australia Faces ASIC's Scrutiny

The regulatory investigation includes "a targeted review" of the crypto exchange's "classification of retail clients and wholesale clients," an ASIC spokesperson said in a media statement.

"ASIC is aware of Binance's social media posts overnight stating that it had incorrectly classed a group of Australian consumers as wholesale investors. It has not yet reported these matters to ASIC in accordance with its obligations under its Australian Financial Services Licence."

Misclassified "Wholesale Investors"

On Thursday, Binance posted on social media that its Australia team mistakenly identified "a small number of Australian users" as "wholesale investors," enabling them to trade derivatives products. After a few hours of the initial post, the exchange revealed this number to be 500. The exchange immediately closed the derivative positions of those clients.

500 users were affected by this remediation, which was a necessary action to ensure we stay compliant with local laws. We serve over 120 million users globally and every user is important to us. We are in contact with the affected users to firm up our compensation plans for them.

In a consecutive tweet, Binance's CEO, Changpeng Zhao, confirmed that all affected users would be compensated.

Users will be compensated for any loss incurred due to the force close of positions. Protecting users is #1 priority @Binance. We will review the situation and see if/when we can re-open futures offerings in Australia. Thank you for your understanding, & please ignore FUD (4). https://t.co/dRG0u8VEuF

Binance does not offer derivatives products to retail clients in Australia, according to the regulatory standards of Australia. As seen on its website, the crypto exchange classifies wholesale clients who are either high-net-worth individuals or controlled entities, professional investors, large corporate, sophisticated investors, related body corporate, and a few others.

To qualify as a high-net-worth client, individuals must have net assets of at least AU$2.5 million or gross annual income of at least AU$250,000 in each of the last two financial years. To qualify, such clients must submit a signed wholesale client acknowledgment statement and copy of a certificate issued by a qualified accountant within the preceding two years, confirming that they meet at least one of the listed criteria.

Binance is the largest cryptocurrency exchange in terms of trading volumes. It handled more than $20.1 billion in spot crypto trades and over $50.1 billion in derivatives trades in the last 24 hours, according to Coinmarketcap. In recent years, there has been heightened regulatory scrutiny on the exchange, and it has also been forced to seek licenses to support its global expansion.

The Australian unit of the exchange is operating with an Australia Financial Services (AFS) license. Its offerings to wholesale investors in the country include cryptocurrency contracts for differences (CFDs), launched last year.