Australian Financial Regulator Sues Kraken Service Provider

Kraken Exchange

The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade, the operator of Kraken cryptocurrency exchange in Australia.

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ASIC has accused Bit Trade of not meeting design and distribution requirements for one of its trading products, specifically a margin trading product.

The civil charges were filed in the Federal Court, as stated in an official announcement on September 21, 2023.

ASIC’s design and distribution obligations, introduced in October 2021, are a mandatory requirement for financial product providers in Australia. These rules mandate that companies create financial products that align with customer needs and distribute them accordingly.

According to ASIC, Bit Trade’s margin trading product functions as a “credit facility,” offering customers credit for buying and selling certain crypto assets on the Kraken exchange. ASIC referred to it as a “margin extension” that allows customers to access credit up to five times the value of their collateral.

The Australian financial regulator alleges that Bit Trade didn’t make a “target market determination” for the margin trading product before offering it to Australian customers. It claims that approximately 1,160 Australian customers used Kraken’s margin trading product after the design and distribution obligations became law, resulting in losses of around 12.95 million Australian dollars.

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ASIC also stated that it notified Bit Trade of its non-compliance with these obligations in June 2022 but alleged that the company continued to offer the product to Australian customers on the Kraken exchange without conducting the required assessments.

ASIC’s Ongoing Crackdown on the Crypto Industry

Similar to its U.S. counterpart, the Australian Securities and Investments Commission (ASIC) has taken a strong stance on cryptocurrency-related entities and companies. ASIC Deputy Chair Sarah Court emphasized the significance of the recent action against the provider of Kraken in Australia, highlighting it as a crucial “message and reminder” for the industry.

In a statement, Court made it clear that these legal proceedings should serve as a warning to the cryptocurrency sector. ASIC will continue to scrutinize its products to ensure compliance with regulatory obligations aimed at safeguarding consumers. She stressed the importance of adhering to design and distribution obligations to ensure proper distribution of financial products to consumers.

Kraken is not the only crypto company to come under regulatory scrutiny from the Australian financial watchdog. In August, ASIC filed a lawsuit against eToro, a cryptocurrency exchange, for alleged violations of design and distribution obligations.

Furthermore, in July, ASIC conducted a raid on the Australian offices of Binance, the world’s largest cryptocurrency exchange, as part of an ongoing investigation into the company’s operations. Prior to this, ASIC had already revoked Binance’s operational license in Australia.

Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.

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