Crypto exchange Kraken has been fined AU$8m (£4.2m) for illegally providing margin trading to over 1,100 customers in Australia.
This fine follows legal action by the Australian Securities and Investments Commission (ASIC) against Bit Trade, operator of the Kraken exchange.
Since October 2021, the company had been offering a “margin extension” product without a Target Market Determination (TMD), allowing customers to obtain and repay margin extensions in digital assets like Bitcoin or fiat currencies.
However, in August, the Federal Court ruled that Bit Trade’s margin extension product was a credit facility and required a TMD. By offering this product in national currencies without the necessary TMD, the company violated its Design and Distribution Obligations (DDO) each time it made the product available to customers.
Joe Longo, Chair of ASIC, emphasised the importance of TMDs, stating that the rules are essential to ensure investors are not marketed products that could cause harm.
“Bit Trade issued its margin extension product to over 1,100 Australians who were charged fees and interest of more than US$7m without considering if the product was appropriate for them,” Longo noted.
He further revealed that customers targeted by Bit Trade incurred trading losses exceeding US$5m, with one investor losing nearly US$4m.
“This is a significant outcome,” he added. “It is ASIC’s first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.”
Justice Nicholas, the judge overseeing the case, stressed the severity of Bit Trade’s actions. He said: “I am satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximise revenue.”
Kraken said it is disappointed with the court’s decision. In its response, the company’s legal spokesperson highlighted the ambiguity surrounding crypto regulations in Australia, stating that “the law with respect to crypto offerings in Australia is not clear.”
The spokesperson added: “The Court found that Kraken’s Margin offering is subject to a set of regulations called the Design and Distribution Obligations when we extended fiat currency to clients, but not when we extended cryptocurrency to clients.
“This is an unsatisfactory position for Australian investors. While we prefer that to be through legislative reform rather than test cases, at least we now have clarity from the Court in respect of our Margin offering, and will move quickly to comply and continue to service our customers.”
In addition to the fine, Bit Trade was also ordered to pay ASIC’s costs for the proceedings.
