Kraken’s Australian entity, Bit Trade, has been slapped with an AUD 8 million fine (approximately $5.2 million USD) for violating Australian financial regulations. The Federal Court found that Bit Trade unlawfully issued a margin extension product to over 1,100 customers without complying with required target market determination (TMD) rules.
Regulatory Violations and Legal Fallout
From October 2021, Bit Trade marketed its margin extension product, allowing customers to make and repay loans in digital assets like Bitcoin or national currencies such as USD. However, the product lacked a TMD, a key regulatory document ensuring financial products are sold only to suitable customers.
The court ruled that every instance of the product issued without a TMD breached Australia’s design and distribution obligations (DDO). This led to customer losses exceeding $5 million and fees and interest charges of over $7 million.
One customer reportedly lost nearly $4 million using the product. Justice Nicholas described Bit Trade’s actions as “serious and motivated by a desire to maximize revenue,” emphasizing the company’s failure to address compliance requirements until intervention by the Australian Securities and Investments Commission (ASIC).
A Warning to Digital Asset Firms
In addition to the AUD 8 million fine, Bit Trade has been ordered to cover ASIC’s legal costs. ASIC Chair Joe Longo hailed the ruling as a “significant outcome,” highlighting its importance as the first penalty against a firm for failing to have a TMD.
“This case serves as a reminder for digital asset firms to thoroughly evaluate and comply with their regulatory obligations,” Longo stated.
The Broader Implications
This ruling underscores the increasing regulatory scrutiny facing crypto companies in Australia and globally. It serves as a warning to firms operating in the digital asset space to prioritize compliance and protect customers from undue risks.
