The Australian Securities and Investments Commission (ASIC) announced that the Federal Court of Australia fined Bit Trade, the local operator of the cryptocurrency exchange Kraken, A$8 million ($5.1 million) for unlawfully offering credit facilities to customers.
Bit Trade was penalized for failing to comply with rules governing its margin trading product. ASIC alleged that the company issued margin extensions—essentially loans—to over 1,100 Australian customers without ensuring the product was suitable for them. This resulted in customer losses exceeding $5 million and fees and interest totaling more than $7 million. The court found that Bit Trade’s margin extensions constituted a credit facility, requiring a “target market determination” to ensure the product was appropriate for specific customer classes.
The penalty was ordered on Thursday, Dec. 7, 2024, following ASIC’s civil proceedings initiated last year. The Federal Court ruled in August that Bit Trade’s product violated Australian financial regulations.
The case pertains to Kraken’s operations in Australia, where Bit Trade facilitated margin trading for customers using both digital assets like Bitcoin and national currencies such as the U.S. dollar.
ASIC argued that Bit Trade failed to determine whether its margin trading product was suitable for its users, violating requirements to establish a target market determination. This marks the first instance where an entity was penalized for failing to comply with this rule, highlighting the regulator’s intent to enforce consumer protections in financial products.
The margin extension product allowed customers to borrow funds for trading, repaid in digital or fiat currencies. Without appropriate safeguards or target market assessments, customers faced significant risks, leading to financial losses. A Kraken spokesperson expressed disappointment with the ruling, arguing that such decisions could hinder economic growth. The company also stated its intention to work constructively with regulators and policymakers to address compliance issues.
The penalty underscores the increasing scrutiny on crypto exchanges globally as regulators seek to align the industry with established financial standards, emphasizing consumer protection and accountability.