- Australia’s Federal Court has ruled in favor of ASIC against Bit Trade regarding Kraken’s margin trading product
- The court has determined that Bit Trade failed to meet its legal obligations for product design and distribution
- ASIC has initiated civil penalty proceedings due to Bit Trade’s non-compliance with regulatory requirements
Australia’s Federal Court has sided with the Australian Securities and Investments Commission (ASIC) in its case against Bit Trade, the company responsible for operating Kraken’s cryptocurrency exchange in Australia. On Thursday, the court determined that Bit Trade had not met its legal obligations related to the design and distribution of its margin trading product. ASIC initiated civil penalty proceedings against Bit Trade in September last year, highlighting the company’s failure to comply with specific regulatory requirements.
Bit Trade Did Not Obtain Target Market Determination
The case centred on Bit Trade’s “margin extension” product, which has been available to Kraken’s Australian customers since October 5, 2021. The court found that Bit Trade had breached the law by offering this product without obtaining the necessary target market determination (TMD), a crucial requirement under Australia’s Corporations Act.
The Corporations Act, specifically Section 994B(2), mandates that companies must identify and outline the appropriate target market for their financial products before offering them to consumers. The TMD is intended to ensure that financial products are both designed and marketed in a manner that aligns with the needs of the appropriate customer base, thereby safeguarding consumers from potential financial risks.
In his ruling, Justice Nicholas clarified that while the obligation to repay digital assets did not equate to a deferred debt, the requirement to repay in traditional currencies, such as the US dollar, did. This distinction led the court to classify Bit Trade’s product as a credit facility under Australian law, in line with ASIC’s interpretation.
ASIC Hails “Significant Outcome”
ASIC Deputy Chair Sarah Court celebrated the victory, calling it a “significant outcome for ASIC involving a major global crypto firm” and adding that the outfit initiated proceedings “to send a message to the crypto industry that we will continue to scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”
Kraken expressed disappointment with the court’s decision but emphasized its commitment to comply with the ruling:
Today’s ruling is another reminder of how cryptoassets are a novel technology. We’re pleased the judge understood the nuances in this case and recognized the challenges in applying existing regulatory frameworks to innovative technologies.
Following the ruling, Bit Trade and ASIC have been given seven days to agree on the declarations and injunctions. ASIC is expected to seek financial penalties against Bit Trade following the ruling.
In September 2021, Kraken was hit with a $1.25 million fine by the Commodity Futures Trading Commission over illegally offering margin trading options to US customers.
