Crypto News: Australia’s regulator secures victory against Kraken’s Bit trade in federal court
Australia’s federal court has sided with the country’s financial regulator, the Australian Securities and Investments Commission (ASIC), in its case against Bit Trade, the operator of Kraken’s crypto exchange in Australia.
The court determined that Bit Trade failed to comply with design and distribution obligations and operated as a credit facility without the necessary license.
In September 2023, ASIC initiated a civil lawsuit against Bit Trade, arguing that the company launched its margin trading product without a target market determination, which is essential for defining appropriate customers.
On August 23, Justice John Nicholas ruled that by “issuing the Product to retail clients without first making a target market determination,” Bit Trade breached these legal requirements.
In Australia, design and distribution obligations are mandated by law for offering financial products. These regulations require companies to tailor products to meet the specific needs of customers and distribute them through a targeted plan.
Additionally, ASIC contended that Bit Trade’s product, which allowed customers to receive credit up to five times the value of their collateral assets, functioned as a credit facility in violation of regulations.
Justice Nicholas noted that “the provision of a Margin Extension in national currency, including Australian or U.S. dollars, creates a ‘deferred debt’ incurred by the customer when they receive the Margin Extension.” This debt “becomes payable when the customer ceases to be eligible for the Margin Extension,” leading to the conclusion that the product is indeed a credit facility.
ASIC and Bit Trade have seven days to agree on declarations and injunctions, with ASIC intending to seek financial penalties against Bit Trade.
Kraken Disappointed but Ready to Comply
ASIC Deputy Chair Sarah Court emphasized that the ruling serves as a warning to the crypto industry to adhere to regulatory obligations in Australia.
“Today’s outcome sends a clear message to the crypto industry about the importance of complying with design and distribution obligations,” she said. “It is a legal requirement for financial products to be distributed to consumers appropriately.”
A Kraken spokesperson expressed disappointment with the ruling but stated the company is “prepared and willing to comply with the court’s decision.”
“Today’s ruling is another reminder of how cryptoassets are a novel technology,” the spokesperson said. “We’re pleased the judge recognized the complexities of applying existing regulatory frameworks to innovative technologies.”
In 2020, the U.S.-based crypto exchange Kraken acquired Australia’s oldest crypto exchange, Bit Trade, along with its license to operate in the country.
