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Australia’s corporate regulator announced on Thursday (Dec. 12) that the country’s federal court has ordered the local operator of cryptocurrency exchange Kraken to pay a fine of A$8 million ($5.1 million) for illegally offering a credit facility to over 1,100 customers.
The Australian Securities and Investments Commission (ASIC) had filed civil proceedings against Bit Trade, the entity managing Kraken’s operations in Australia, accusing it of breaching regulations related to its margin trading product.
Legal proceedings launched by ASIC have seen the Australian operator of the Kraken crypto exchange ordered to pay $8 million for unlawfully issuing a credit facility to more than 1,100 Australian customers https://t.co/YH8A4QRMTH pic.twitter.com/nB16fnTMmg
— ASIC Media (@asicmedia) December 12, 2024
Why is Kraken crypto exchange being fined in Australia?
In August, the country’s Federal Court determined that Bit Trade’s product qualified as a credit facility, requiring a target market determination (TMD) due to its provision of margin extensions in national currencies.
Consequently, the company is said to have violated its design and distribution obligations (DDO) each time it offered the margin extension product to customers without the necessary TMD. A TMD is a document that describes the target market for a financial product, including who it’s suitable for and how it can be distributed.
It is required under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019, as they help customers find products that match their needs, objectives, and financial situation.
ASIC Chair Joe Longo said in a statement that a TMD is fundamental to ensuring investors are not inappropriately marketed products that could harm them.
He added: “Those customers Bit Trade targeted suffered trading losses of more than US$5 million, including one investor who lost almost US$4 million.
“This is a significant outcome. 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.”
In delivering his penalty decision, Justice Nicholas highlighted that Bit Trade “did not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ASIC” and that “the failure to consider that matter points to a seriously deficient compliance system.”
‘Urgent need for bespoke crypto legislation’
Cited by the Australian Broadcasting Corporation, a Kraken spokesperson said: “As stated before, we believe this case highlights the urgent need for bespoke crypto legislation to address the shortcomings that are causing confusion and uncertainty for Australian crypto investors and businesses.
“We believe these rulings significantly hamper growth in the Australian economy. We look forward to engaging constructively with policymakers and regulators as these rules are developed.”
The penalty follows closely on the heels of ASIC initiating industry consultations with the digital-assets sector. In recent months, ReadWrite reported that the regulator plans to require cryptocurrency firms to be licensed under corporate law in an effort to regulate crypto assets such as Bitcoin and Ethereum.
A Kraken spokesperson told ReadWrite: “We appreciate the Court recognised our compliance efforts, but are disappointed with the outcome of this case.
“As stated before, we believe this case highlights the urgent need for bespoke crypto legislation to address the shortcomings that are causing confusion and uncertainty for Australian crypto investors and businesses.
“We believe these rulings significantly hamper growth in the Australian economy. We look forward to engaging constructively with policymakers and regulators as these rules are developed.”
Featured image: Canva
