Kraken’s Australian entity, Bit Trade, is facing a multi-million fine for failing to comply with rules requiring a target market determination for its margin extension product.
The Australian operator of the Kraken crypto exchange, Bit Trade, has been fined AUD 8 million (around $5.2 million) for unlawfully issuing a credit facility to more than 1,100 customers, the Australian Securities and Investments Commission said in a Thursday press release, Dec. 12.
The Federal Court ruled that the company failed to follow Australian laws requiring financial products to have a target market determination to ensure they are sold to the right customers.
From October 2021, Bit Trade offered a margin extension product that “provided for margin extensions to be made and repaid in either digital assets like Bitcoin (BTC) or national currencies such as U.S. dollars,” the regulator says. However, the product was marketed without a required target market determination, a key regulatory document meant to ensure financial products are offered only to suitable customers.
The court found Bit Trade’s product breached design and distribution obligations requirements every time it was issued without a target market determination. Customers were charged fees and interest exceeding $7 million, with trading losses surpassing $5 million, the regulator claims.
One investor reportedly lost nearly $4 million using the margin extension product. Justice Nicholas, in his ruling, described Bit Trade’s actions as “serious and motivated by a desire to maximize revenue,” adding that the company failed to address compliance requirements until flagged by ASIC.
Commenting on the ruling, ASIC Chair Joe Longo called it a “significant outcome,” adding that “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 addition to the fine, Bit Trade was ordered to cover ASIC’s legal costs.
