Australia’s regulator wins case against Kraken’s local operator

The Australian Federal Court has ruled against Kraken for failing to comply with its legal obligations when offering a margin trading product.

An Australian court has ruled that Bit Trade, the operator of the Kraken cryptocurrency exchange in Australia, breached regulatory requirements by offering a margin trading product without complying with its design and distribution obligations.

The Australian Securities and Investments Commission said in a press release on August 23 that the decision was a significant regulatory action against a major global crypto player. ASIC Deputy Chair Sarah Court added that the regulator wanted to “send” a message to the crypto industry with the decision that it “will continue to review products to ensure they comply with regulatory obligations to protect consumers.”

According to ASIC, since October 2021 Bit Trade’s “margin extension” product had been offered to Kraken customers without the legally required target market identification, breaching section 994B(2) of the Corporations Act, which requires an issuer of a financial product to identify the appropriate consumer group.

The Court found that the obligation to repay a crypto asset under the margin extension product did not constitute a deferred debt, but repayment in national currencies did, and that the product was a credit facility. ASIC and Bit Trade were given seven days to agree on the declarations and injunctions, with ASIC seeking financial penalties against the company at a later date.

Commenting on the decision, a Kraken spokesperson told media that the decision was “another reminder of how new a technology crypto assets are.”