The Federal Court of Australia identified Kraken’s compliance system as ‘seriously deficient’ after repeated regulatory breaches.
On Thursday, the Australian Securities and Investments Commission (ASIC) revealed it has fined Bit Trade Pty Ltd, the operator of Kraken’s Australian cryptocurrency exchange, up to $8 million for violating federal securities laws.
According to the announcement, the penalty arose from Bit Trade’s unlawful provision of a margin extension product to over 1,100 Australian clients without fulfilling necessary regulatory requirements.
Kraken’s Australian Subsidiary and Its Operations
Bit Trade Pty Ltd, a direct subsidiary of Payward Incorporated, became Kraken’s Australian exchange operator in 2020 after being acquired by the centralized cryptocurrency exchange. The firm is registered with the country’s financial intelligence unit, the Australian Transaction Reports and Analysis Centre (AUSTRAC) to deliver cryptocurrency-related services under Kraken’s name.
However, regulatory concerns emerged when authorities discovered Bit Trade had offered a ‘margin extension’ product to customers without obtaining a legally required target market determination (TMD). The product allowed customers to borrow and repay funds in either digital currencies such as Bitcoin BTC $84 514 24h volatility: 0.5% Market cap: $1.68 T Vol. 24h: $9.12 B or fiat currencies like the US dollar.
In its Thursday statement, ASIC confirmed the violations were identified during a Federal Court investigation in August. The regulator found that the company breached its design and distribution obligations (DDO) each time it offered the margin extension product without having a valid TMD.
“Bit Trade issued its margin extension product to over 1100 Australians who were charged fees and interest of more than US$7 million without considering if the product was appropriate for them,” ASIC stated.
ASIC’s First Legal Action for TMD Non-Compliance
The market watchdog further disclosed that customers collectively incurred losses exceeding $5 million, with one individual investor losing as much as $4 million.
In addition to the $8 million fine, Bit Trade was ordered to cover ASIC’s legal costs for the proceedings.
ASIC described this penalty as its first enforcement action against a company for failing to have a TMD. The case serves as a stark reminder for digital asset firms to prioritize compliance with regulatory obligations.
The regulator clarified that under current Australian law, the requirement for companies to disclose their target market applies to all products offered by cryptocurrency firms.
“ASIC believes many products offered by digital assets firms are captured by the current law, which means those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections,” the press release reads.
Justice Nicholas, who presided over the case, highlighted that Bit Trade had failed to address the DDO requirements until ASIC raised the issue. He described the lapse as evidence of a “seriously deficient compliance system”.
Meanwhile, the ruling coincides with ASIC’s ongoing industry consultation with the digital asset sector. The regulator is currently seeking input from cryptocurrency providers and exchanges on proposed updates to its guidelines concerning when products from digital asset firms qualify as regulated under existing laws.
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