On December 12, 2024, Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), announced that the country’s Federal Court had ordered Kraken’s Australian operator, Bit Trade, to pay a fine of A$8 million (approximately $5.1 million). This fine comes as a result of the unlawful issuance of a credit facility to over 1,100 customers.
The Legal Case Against Kraken’s Australian Operator
ASIC had initiated legal action against Bit Trade in 2023, accusing the company of failing to comply with the regulations surrounding its margin trading product. Margin trading, in this case, involved offering customers the ability to borrow money to trade digital assets like Bitcoin or traditional currencies.
The case revealed that Bit Trade had issued margin trading products to over 1,100 Australians, who were charged substantial fees and interest exceeding US$7 million. However, ASIC argued that Bit Trade did not properly assess whether these products were appropriate for the customers involved, resulting in losses of over $5 million.
Kraken’s Response to the Ruling
Kraken, the well-known cryptocurrency exchange behind Bit Trade’s operations in Australia, expressed disappointment in the court’s ruling. A spokesperson for the company stated that the decision could hinder the growth of Australia’s economy. The spokesperson also emphasized Kraken’s commitment to working collaboratively with policymakers and regulators to shape future rules.
Key Legal Findings
In August 2024, the Federal Court ruled that the margin trading product issued by Bit Trade was effectively a credit facility. Since this product involved offering margin extensions in both national currencies (like US dollars) and digital assets, it triggered the need for a “target market determination.” This public document is required to identify the group of consumers for whom the product is most suitable.
This case is significant because it marks the first penalty imposed on an entity for failing to provide a target market determination, highlighting the importance of following regulations in the financial sector.
What This Means for the Crypto Industry
This ruling against Kraken’s Australian operator underscores the increasing scrutiny crypto exchanges are facing, particularly when it comes to margin trading and offering credit products. It also serves as a reminder of the need for companies in the financial industry to ensure that their products are tailored to the right customers and comply with local regulations.
