The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade, the provider of the Kraken cryptocurrency exchange in Australia, for alleged non-compliance with design and distribution obligations pertaining to one of its trading products.
In a statement released on September 21, ASIC asserted that Bit Trade failed to conduct a target market determination before offering its margin trading product to Australian customers. Design and distribution obligations are legal prerequisites for financial firms operating in Australia, mandating that they design financial products catering to predetermined customer needs and distribute them through a targeted strategy.
According to ASIC, since the implementation of design and distribution obligations in October 2021, over 1,160 Australian customers have utilized Bit Trade’s margin trading product, resulting in collective losses totaling approximately $8.35 million (12.95 million Australian dollars).
ASIC alleges that it notified Bit Trade of its failure to adhere to these obligations in June 2022, but Bit Trade continued to offer the product without taking the necessary measures.
Jonathon Miller, managing director of Kraken’s Australian operations, expressed surprise at ASIC’s action, believing that their product was compliant with local regulations. He stated, “We have been attempting to constructively engage with ASIC on this matter for some time to ensure our product offering, as an AUSTRAC-registered Digital Currency Exchange, remains compliant.”
Bit Trade’s margin trading product provides a “margin extension” service, permitting customers to receive credit extensions of up to five times the value of the assets they use as collateral. However, ASIC categorizes this product as a “credit facility,” as it provides customers with credit for trading certain crypto assets on the Kraken exchange.
ASIC’s deputy chair, Sarah Court, emphasized that these legal proceedings serve as a reminder to the cryptocurrency industry that financial products will continue to be subject to regulatory scrutiny to ensure compliance with Australia’s consumer protection laws.
The outcome of this case will be closely watched not only by the crypto industry but also by regulators worldwide as they grapple with the challenges of regulating the rapidly evolving digital asset landscape.