On 4 April 2023, the Australian Securities and Investments Commission (ASIC) cancelled the Australian financial services licence (AFSL) of the world’s largest cryptocurrency exchange, Oztures Trading Pty Ltd trading as Binance Australia Derivatives (Binance). As a result, the world’s largest cryptocurrency exchange can no longer operate legally within Australia.
The cancellation of Binance’s AFSL reflects ASIC’s increased focus on regulating the crypto-space, and the broader national and international movement towards scrutinising and regulating cryptocurrency exchanges in order to minimise consumer harms involving crypto-asset.
Crypto related corporation or crypto-investors should be aware of ASIC’s increased scrutiny of crypto-assets, notably, cryptocurrency exchanges, and the impact this may have on the crypto-market and crypto-investments. It is a timely reminder for corporations in this space to ensure they are adhering to the law, or they risk their AFSL being cancelled, and/or proceedings being commenced against them.
Cryptocurrency is a digital currency created using encryption algorithms. It can be used as an alternative form of payment, and it has an equivalent value in central bank currencies such as AUD or USD1.
ASIC considers Cryptocurrency as a “crypto-asset”, being:
“a digital representation of value or rights (including rights to property), the ownership of which is evidenced cryptographically and that is held and transferred electronically by:
This definition provides useful guidance on the types of products and services ASIC will regulate in the crypto-space.
Binance is a cryptocurrency exchange (or a digital currency exchange), which is an online trading platform used to buy, sell and exchange cryptocurrencies. It can also be used to convert fiat currencies, such as AUD and USD, into cryptocurrency and vice versa.3
On 29 March 2023, ASIC served a notice of hearing under s 915C of the Corporations Act 2001 (Cth) (Notice) on Binance advising it would hold a hearing to consider whether Binance’s AFSL should be cancelled.
The Notice was issued after ASIC had identified a number of irregularities in Binance’s operations, including, that Binance had been classifying hundreds of its ‘retail customers’ as being ‘wholesale investors’. The distinction between ‘retail customers’ and ‘wholesale investors’ is important, as retail customers are afforded greater protections under Australian Law. As ASIC chair Joe Long explains:
“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.”4
After negotiations Between ASIC and Binance on 4 April 2023, Binance asked ASIC to cancel its AFSL, which ASIC then cancelled.
In addition to the recent cancellation of Bincance’s AFSL, Binance’s operations are also being investigated in relation to allegations of further questionable practices in the United Kingdom, Japan, Singapore, Italy, the Netherlands, Thailand and Canada.5 In March of 2023, the U.S commodities Futures Trading Commission sued Binance and its founder Changpeng Zhao for alleged ‘illegal’ exchange.6
Regulating crypto-assets is difficult because of the decentralised nature of crypto-assets and the difficulty in neatly placing or characterising crypto-assets within existing legal frameworks.
ASIC, Australia’s financial markets conduct regulator, can only regulate crypto-assets to the extent that these crypto-assets fit within the legal framework for financial products and services.7 As explained by ASIC Commissioner Cathie Armour:
“Where they [crypto-assets] fall outside of this regime, consumers may be investing in an environment where they are not afforded the same level of protection that applies to financial products and services.”
In 2021, ASIC and the Australian Competition and Consumer Commission reported that Australians had lost $99 million to Crypto-asset scams.8
To address this issue, in late 2021 Government began discussing the need for a regulatory framework for crypto-assets. In 2022, the Australian Government responded to recommendations made by the:
with in-principle policy proposals to change the regulatory framework for crypto assets. Since then, there has been limited development in this space, although it is expected that a regulatory framework for cryptocurrency will be introduced in the near future.9
In the meantime, ASIC is doing its best to minimise investor harms involving crypto-assets by regulating the crypto-assets that fall within the financial products and services framework, including cryptocurrency exchanges such as Binance.
In terms of recent ASIC activity in the crypto space, ASIC has cancelled Binance’s AFSL. In late 2022, ASIC commenced its first Court Action in the Crypto space, initiating civil penalty proceedings in the Federal Court against BPS Financial Pty Ltd.10 In November 2022, ASIC commenced civil proceedings in the Federal Court against financial technology (fintech) company Block Earner alleging it provided unlicensed financial services in relation to crypto-assets.11
ASIC is taking its 2023 Enforcement Priority of regulating and enforcing the crypto-space seriously. Providers of crypto-assets should be aware of this increased scrutiny by ASIC, and take care to follow all the applicable rules and regulations as ASIC has shown willing and able to penalise or commence proceedings against crypto-asset providers.
Investors of crypto-asset should also be wary of ASIC’s increased scrutiny, as any proceedings against cryptocurrency exchanges may affect the value of investment and the recoverability of investments in an already volatile and high risk market.
For advice relating to the regulatory framework applicable to your crypto-asset, or matters relating to corporate crime and regulatory investigations, please contact Cinzia Donald, Partner in Lavan’s Litigation and Dispute Resolution Team.
1 Australian Senate Economics References Committee, Digital Currency — Game Changer or Bit Player Report (2015) p 4–5, link; David Kreltszheim Cornwalls, ‘what we know and don’t know about cryptocurrency exchanges: a summary for finance and insolvency lawyers’
2Australian Securities and Investments Commission, ‘Crypto-assets’, Information Sheet 225 (Media release, INFO 225, October 2021) <link>.
3Corporate Finance Institute, ‘Cryptocurrency Exchanges’ (webpage, 3 April 2023) <link>.
4Australian Securities and Investments Commission, ‘Binance Australia Derivatives – AFS licence cancelled’ (Media Release, 23-091MR, 6 April 2023) <link>.
6ABC News, ‘US regulator sues top crypto exchange Binance for 'illegal' exchange, 'sham' compliance efforts’ (media release, 28 March 2023) <link>.
7 Australian Securities and Investments Commission, ‘Regulating crypto-asset–based investment products within the financial services framework’, speech by Commissioner Cathie Armour (6 April 2022) <link>.
8Australian Securities and Investments Commission, ‘Regulating crypto-asset–based investment products within the financial services framework’, speech by Commissioner Cathie Armour (6 April 2022) <link>.
9Australian Securities and Investments Commission, ‘Regulating crypto-asset–based investment products within the financial services framework’, speech by Commissioner Cathie Armour (6 April 2022) <link>.
10Australian Securities and Investments Commission, ‘ASIC sues BPS Financial for alleged misleading statements about crypto-asset Qoin’ (Media release, 22-287MR, 25 October 2022) <link>.
11Australian Securities and Investments Commission, ‘ASIC sues Block Earner for unlicensed conduct over crypto-asset based products’ (Media release, 22-324MR, 23 November 2022) <link>.