‘$17 million compensation awarded to users of ‘Financial Heroin”

Sellers of high-risk financial betting products – described by an Australian judge as financial heroin hits – have collectively paid out more than $17 million in compensation to thousands of Australian clients after breaching new market rules.

Binance, which is known in Australia mostly for its glitzy but regulatorily challenged cryptocurrency platform, paid out the bulk of the compensation after it incorrectly gave regular investors access to ultra-high-risk betting products usually only reserved for traders at large investment banks and other finance houses.

Binance paid $13.1 million to 523 derivatives clients of its Australian financial betting arm between May and September 2023, equivalent to more than $25,000 per client. The company’s Australian financial services licence was cancelled earlier this year after the group decided to close its business selling the highly complex betting products.

The sellers of these products have been put on notice by the Australian Securities and Investment Commission that their marketing and sales practices could, in some instances, fall foul of local market rules.

The products are known in the market as contracts for difference [CfDs]. They allow punters to bet that a share price or the price of a commodity like gold will go up or down over a set period, for example a week or a day. Some groups also sell contracts for bets on the price of a cryptocurrency. The products are sold with leverage so that a holder can turn a $5 bet into a $500 windfall if their bet is correct. But it also works the other way, meaning punters who put in $5 and lose owe their broker $495.

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ASIC brought in new rules in 2021 that drastically reduced the amount of leverage that could be sold, bringing Australia into line with most Western countries that have strict limits on how these high-risk products are sold and marketed. Ultra-high-leverage products are still available to professional traders and are used by brokers and other trading houses.

Along with Binance’s Australian derivatives arm, a host of other major groups operating in the sector – including CMC Markets, IG, Pepperstone, Saxo Capital Markets, City Index, Eightcap and Capital.com – have compensated clients after reporting breaches of the new rules to the corporate watchdog. All up, 1500 customers from the seven issuers received $4.3 million in compensation from the brokers.

ASIC deputy chair Sarah Court said it was important that retail clients get the protections they are entitled to under the law when dealing with these risky products.