Binance, IG, Pepperstone, Saxo and others pay $17.4M compensation

abdelaziz Fathi

Australia’s corporate regulator has overseen the payment of $17.4 million in compensation to over 2,000 retail clients. This action comes in response to breaches of financial services laws by eight retail over-the-counter (OTC) derivative issuers.

One particular aspect under review by the Australian Securities and Investments Commission (ASIC) was the classification of clients into retail and wholesale investors.

The bulk of this compensation stems from issues related to leverage ratio limits and client misclassification, particularly in contracts-for-difference (CFD) trading. In a media release, ASIC disclosed that the Aussie arm of Binance accounted for a substantial portion of this amount, paying out $13.1 million to 523 clients for misclassification issues.

Binance’s missteps in client classification deprived these retail clients of essential consumer protections during their OTC derivative trading activities, the ASIC said. This resulted in compensation payouts totaling $7.8 million in May and June 2023, followed by an additional $5.2 million in September 2023.

These payments were made to cover net losses and fees incurred from July 2022 to February 2023. The affected clients incurred losses on over 150,000 CFD trades across 100 different CFD instruments, exceeding the maximum leverage permitted by the product intervention order in the Corporations Act.

An interesting aspect of ASIC’s action is the self-reporting by seven CFD issuers of breaches related to exceeding leverage limits. The brokers involved in these breaches include Capital.Com Australia, CMC Markets Asia Pacific, Eightcap, IG Australia (IG Markets and IG Australia), Pepperstone Group, Saxo Capital Markets (Australia), and StoneX Financial (trading as City Index). These breaches were attributed to weaknesses in change management processes and manual errors.

ASIC Deputy Chair Sarah Court said, “OTC derivatives are complex, high-risk financial products. It is important that retail clients get the protections they are entitled to under the law when dealing with these risky products. These protections include the CFD product intervention order, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority.”

The compensation methodology employed by these issuers came under ASIC’s scrutiny, revealing that certain behavioral assumptions led to lower initial compensation payouts. Following ASIC’s review, four of the issuers subsequently paid over $2.8 million in additional compensation.

Earlier in April, the Australian regulator canceled Binance Australia’s derivatives license at the world’s largest cryptocurrency exchange’s own request.

The development came amid debate and controversy around Binance Australia after it closed derivatives positions of some users. The crypto exchange stated that it had incorrectly classified 500 Australian users as “wholesale investors.”

As per regulation, Binance was required to terminate services to these accounts immediately, but said it will fully compensate affected users for the losses incurred while trading derivatives.

Read this next

Retail FX

Revolut eyes Big Four auditor as board frustrated by BDO remarks

British fintech firm Revolut is reportedly considering a change in its auditing firm following a warning in its last annual accounts, as audited by BDO.

Institutional FX

Börse Group’s 360T taps Virtu for TCA and trading analytics

Virtu Financial and Deutsche Börse Group’s FX platform, 360T, have teamed up to improve the foreign exchange trading experience for their clients.

Digital Assets

Bybit Surpasses 20 Million Users Milestone Ahead of 5-Year Anniversary

Celebrating its 5th anniversary in December of this year, Bybit announced that it has surpassed 20 million registered users, highlighting its growth and position in the industry.

Digital Assets

Changpeng Zhao leaves Binance.US as SEC ramps up scrutiny

Changpeng ‘CZ’ Zhao has resigned from his position as chairman of the board for Binance.US, distancing himself from the governance of the American division of the cryptocurrency exchange.

Digital Assets

M2 granted full license to operate multilateral trading facility in UAE

Cryptocurrency exchange M2 has been approved as a fully regulated Multilateral Trading Facility (MTF) and custodian, now authorized to engage with UAE retail and institutional clients.

Digital Assets

Court approves Voyager’s $1.65 billion settlement with FTC

A New York federal judge has given the nod to a settlement that holds Voyager Digital and its former CEO, Stephen Ehrlich, accountable for misleading investors about the safety of their funds.

Retail FX

Financial Safety First: Why Regulated Brokers Are Your Best Compass

Picture yourself on the brink of the expansive financial trading universe, poised and ready to jump. But what ensures your descent into this financial abyss is controlled and secure? The unspoken hero here is regulation. It serves as a safeguard, setting rules and standards that help you navigate the market with a greater sense of security and less risk of unforeseen losses.

Industry News

Obituary: Campbell Adams, founder of ParFX and Pure Digital, passes away

Campbell Adams’ pioneering spirit and his contributions to the development of the FX industry as well as the digital asset trading space will be remembered and valued by industry peers and the broader financial community.

Inside View

Will Europe lead the way in crypto derivatives market structure?

The envisioned future market structure aims to provide direct access to regulated venues, offering 24/7 trading, lower initial margin requirements, and efficient risk management through remote custody agreements. This model is not just about addressing the current challenges but is also geared towards leveraging the best practices from the crypto markets.