The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade, the provider of the Kraken cryptocurrency exchange in Australia. ASIC alleges that Bit Trade failed to comply with design and distribution obligations specifically for its margin trading offering.
Design and distribution obligations are mandatory for firms offering financial products in Australia. They require companies to design financial products that meet customers’ predetermined needs and distribute them through targeted plans.
ASIC claims that Bit Trade did not make a target market determination before offering its margin trading product. This allows customers to receive credit up to five times the value they use as collateral for trading.
Legal action for design and distribution obligations violation
According to ASIC, at least 1,160 Australian customers used Bit Trade’s margin trading product since the introduction of design and distribution obligations in October 2021, resulting in a total loss of approximately $8.35 million (12.95 million Australian dollars).
Despite being notified of its failure to comply with these obligations in June 2022, Bit Trade allegedly continued to offer the product without making the necessary determinations.
ASIC Deputy Chair Sarah Court emphasized the importance of complying with design and distribution obligations. She stated that the regulator’s action serves as a reminder to the crypto industry to adhere to consumer protection laws.
The case also raises questions about the classification of certain cryptocurrency products and services under existing financial regulations.
In this instance, ASIC argues that Bit Trade’s margin trading product is effectively a “credit facility” because it provides customers with credit for trading crypto assets on the Kraken exchange.
Founded in 2011, the Kraken exchange is based in the United States. It earned the distinction of being one of the earliest bitcoin exchanges listed on Bloomberg Terminal. Kraken achieved a valuation of US$10.8 billion in mid-2022.
Since 2018, regulatory authorities have conducted several investigations into the company, resulting in Kraken agreeing to pay cumulative fines exceeding $30 million.
Kraken did not comment on the matter at the time of writing.