ASIC Takes Legal Action Against Kraken Crypto Exchange Provider Bit Trade

The Australian Securities and Investments Commission (ASIC) has launched civil proceedings against Bit Trade, the operator of the Kraken crypto exchange in Australia. The regulatory body alleges that Bit Trade failed to comply with design and distribution obligations for one of its trading products. This action underscores ASIC’s commitment to ensuring that financial products within the cryptocurrency space adhere to regulatory standards to protect consumers.

According to ASIC’s official statement released on September 21, the regulatory body contends that Bit Trade did not conduct a target market determination before making its margin trading product available to Australian customers. The margin trading product in question, offered through the Kraken exchange, provides customers with credit for trading certain crypto assets, a practice referred to as ‘margin extension.’ Customers are allowed to extend their credit to an amount up to five times the value of their collateral assets.

ASIC Deputy Chair, Sarah Court, emphasized the gravity of the situation, stating, “These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations in order to protect consumers.”

ASIC’s case centers on Bit Trade’s failure to fulfill the design and distribution obligations required by law. These obligations mandate that firms design financial products that meet the needs of consumers and distribute them in a targeted manner. A crucial component of DDO is the creation of a target market determination, a publicly accessible document that outlines the class of consumers for which a financial product is deemed appropriate and relevant information regarding the product’s distribution and review.

Bit Trade has been offering its margin trading product to Australian customers through the Kraken exchange since January 2020. However, ASIC alleges that since the commencement of the design and distribution obligations on October 5, 2021, over 1,160 Australian customers have utilized the margin trading product, incurring a collective loss of approximately $12.95 million.

ASIC’s concerns regarding Bit Trade’s failure to comply with the design and distribution obligations were initially communicated to the company in June 2022. Despite these concerns, Bit Trade continued to provide the product to Australian customers without a target market determination in place.

In response to Bit Trade’s alleged non-compliance, ASIC has initiated civil penalty proceedings in the Federal Court against Bit Trade Pty Ltd. The regulatory body is seeking a range of actions, including declarations, pecuniary penalties, and injunctions aimed at preventing further contravention of regulations.

This legal action by ASIC against Bit Trade serves as a reminder to the entire cryptocurrency industry of the necessity to adhere to regulatory requirements and obligations, particularly in the design and distribution of financial products. As the crypto sector continues to evolve, regulators like ASIC are actively monitoring and enforcing compliance to safeguard the interests of consumers.

The date for the first case management hearing has yet to be scheduled by the Court, but this development underscores the ongoing need for robust oversight in the cryptocurrency space. Entities involved in crypto-related products are encouraged to familiarize themselves with regulatory guidelines, such as ASIC Information Sheet 225: Crypto Assets, to ensure they meet the necessary compliance standards.

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