Australian Court Sides With Regulator In Case Against Kraken

• Kraken was found guilty of providing its product without conducting a target market determination and operating a credit facility in Australia.
• The ASIC, the regulator that brought the suit, and Kraken’s local entity, Bit Trade, have seven days to negotiate settlements.

Australian federal court ruled against Kraken’s local entity, Bit Trade, in a suit brought against it by the Australian Securities and Investments Commission (ASIC). The regulator claimed that Bit Trade launched its product without meeting design and distribution obligations, violating financial regulations.

The ASIC took to X to announce its victory, “The Federal Court has ruled Bit Trade, operator of the Kraken #crypto exchange in Australia, failed to comply with the design and distribution obligations when offering a margin trading product to Australian customers.”

Justice John Nicholas agreed with ASIC’s allegations and found Bit Trade was guilty of violating laws by “issuing the Product to retail clients without having first made a target market determination for the Product.” Australia requires service providers to tailor their products according to customers’ needs, which is why Kraken’s Bit Trade was found guilty, as it took no measure to assess said needs.

The ASIC Accused Bit Trade of Also Running a Credit Facility That Violated Regulations

ASIC also accused Bit Trade of operating a credit facility as it allowed users to extend their credit by up to five times their digital assets deposited as collateral—another violation of regulations. Judge Nicholas agreed partially, “a margin extension in a national currency created a deferred debt which meant that the product was a credit facility.” However, he “found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt.”

So, Bit Trade will have to shell out fines for acting as a credit facility for extending margins through Australian and US dollars, alongside failing to make a target market determination. According to the ASIC’s announcement, the judge gave a seven-day deadline for both parties to “agree on declarations and injunctions.” ASIC “will seek financial penalties against Bit Trade.”

Sarah Court, ASIC’s Deputy Chair, said about the judgment, “This is a significant outcome for ASIC involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinise products to ensure they comply with regulatory obligations in order to protect consumers.”