Bit Trade, the Australian operator of the Kraken crypto exchange, has been ordered to pay $8 million for unlawfully issuing a credit facility to more than 1,100 Australian customers, according to the Australian Securities and Investments Commission (ASIC).
In an announcement on Thursday, ASIC said that from October 2021, Bit Trade had offered its customers a “margin extension” product without a target market determination (TMD). The product provided for margin extensions to be made and repaid in either digital assets like bitcoin or national currencies such as US dollars.
“Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them,” ASIC chair Joe Longo said on the order.
“Bit Trade issued its margin extension product to over 1,100 Australians who were charged fees and interest of more than US$7 million without considering if the product was appropriate for them,” Longo added.
“Those customers Bit Trade targeted suffered trading losses of more than US$5 million, including one investor who lost almost US$4 million.”
The chair acknowledged the significance of the outcome, marking 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”.
“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.”
Bit Trade was also ordered to pay ASIC’s costs for the proceedings.
In handing down his penalty on Thursday, Justice Nicholas noted that Bit Trade “did not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ASIC”, and that “the failure to consider that matter points to a seriously deficient compliance system”.
ASIC highlighted that his honour observed that the product was made available to customers without any consideration of the impact of the DDO regime until after ASIC intervention and that Bit Trade continued to offer the product when it knew or ought to have known it was likely in breach of the law.
“I am satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximise revenue,” his honour said.
Following the margin penalty judgment being handed down, a Kraken spokesperson said on Thursday, “We appreciate the court recognised our compliance efforts, but are disappointed with the outcome of this case,” the spokesperson said.
“As stated before, we believe this case highlights the urgent need for bespoke crypto legislation to address the shortcomings that are causing confusion and uncertainty for Australian crypto investors and businesses. We believe these rulings significantly hamper growth in the Australian economy. We look forward to engaging constructively with policymakers and regulators as these rules are developed.”
The penalty comes shortly after the regulator commenced industry consultation with the digital assets sector.
ASIC reiterated that it is seeking feedback from digital assets providers and exchanges on draft updates to our guidance on when products offered by digital asset firms may be considered regulated products under the current law.
