The Federal Court of Australia has found Bit Trade, the local operator of the Kraken cryptocurrency exchange, guilty of failing to comply with legal requirements in offering margin trading. This was announced by the Australian Securities and Investments Commission (ASIC).
On October 5, 2021, Bit Trade offered Australian clients trading on Kraken the “margin extension” feature without “defining the target market,” thereby violating the Corporations Act.
Section 994B(2) requires companies to determine the suitability of their financial products for specific clients. This is necessary for developing and offering tools that meet the needs of particular customers.
The proposed product allowed for margin extension and its repayment in digital and fiat assets. ASIC’s lawsuit claimed that the repayment obligation constituted a deferred debt and, accordingly, represented a line of credit.
The court ruled that the charge pertains only to the national currency—the instrument indeed created a line of credit. This does not apply to the obligation to return crypto assets.
“We initiated proceedings to send a signal to the crypto industry about the importance of conducting thorough product checks for regulatory compliance to protect consumers,” said ASIC Deputy Chair Sarah Court.
ASIC and Bit Trade have seven days to settle the dispute. The commission will seek financial penalties against the crypto company.
Kraken stated that it will comply with the court’s decision, although it views the ruling as “an example of the lack of clarity in the country’s cryptocurrency legislation.”
Back in January 2020, the company announced the acquisition of the Australian crypto trading platform Bit Trade, founded in 2013.
In September 2023, the Australian regulator accused Kraken’s subsidiary of non-compliance with margin trading requirements.