Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), has initiated civil proceedings against Bit Trade Pty Ltd, the provider of the Kraken cryptocurrency exchange services to Australian customers. The regulator alleges that Bit Trade has failed to comply with design and distribution obligations (DDO) for its margin trading product, resulting in significant losses for customers.
The DDO framework, designed to protect consumers, mandates that financial firms create products tailored to customer needs and distribute them responsibly. ASIC’s case against Bit Trade centers on the company’s failure to establish a target market determination for its margin trading product before offering it to Australian customers, as required by law.
Bit Trade’s margin trading product operates as a credit facility, allowing customers to buy and sell select crypto assets on Kraken with credit extended up to five times the value of their collateral. Since the DDO came into effect in October 2021, over 1,160 customers have used Bit Trade’s margin trading product, resulting in a cumulative loss of approximately A$12.95 million ($8.35 million).
ASIC is pursuing legal action against Bit Trade to address these alleged compliance violations. The regulator is seeking declarations, monetary penalties, and injunctions to halt Bit Trade’s ongoing conduct. No specific date for the first case management hearing has been scheduled.
ASIC’s Deputy Chair, Sarah Court, emphasised the importance of regulatory scrutiny in protecting consumers within the cryptocurrency sector. Court stated that the legal proceedings should serve as a reminder to the crypto industry that products will be scrutinised to ensure they comply with regulatory obligations.
Bit Trade has been offering its margin trading product to Australian customers through Kraken since January 2020. Despite receiving concerns from ASIC in June 2022, the company continued to provide the product without establishing the necessary target market determination.
In response to the allegations, Jonathon Miller, the Director of Kraken Australia, expressed disappointment at the enforcement action. He pledged to seek further clarification from regulators and stressed that their product fully complies with local laws.
This regulatory action aligns with a broader trend of increased oversight within the cryptocurrency industry in Australia. In recent months, ASIC revoked the licence of FTX Australia as part of its efforts to establish comprehensive regulatory frameworks. Traditional financial institutions, such as Westpac and National Australia Bank (NAB), have also taken measures to limit payments to cryptocurrency exchanges, citing the need to protect customers from potential scams and risks associated with the crypto market.