The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade, the operator of the Kraken cryptocurrency exchange in Australia, for alleged non-compliance with design and distribution obligations related to one of its trading offerings.
In a statement issued on September 21, ASIC claimed that Bit Trade had failed to establish a target market determination before making its margin trading product available to Australian customers.
Design and distribution obligations are legal mandates that apply to firms offering financial products in Australia. These obligations outline specific requirements for designing financial products that meet customers’ pre-determined needs and distributing them through a targeted approach.
We are suing Bit Trade, provider of the Kraken crypto exchange in Australia, for allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product. Since October 2021, customers have lost about $12.95 million https://t.co/MCRYqah0dP pic.twitter.com/zURQ2xDw7M
— ASIC Media (@asicmedia) September 20, 2023
ASIC asserted that since introducing design and distribution obligations in October 2021, at least 1,160 Australian customers had used Bit Trade’s margin trading product and suffered a cumulative loss of around $8.35 million (12.95 million Australian dollars).
The regulator reported that it had informed Bit Trade of its failure to comply with these obligations in June 2022. However, it alleges that Bit Trade continued to offer the product without addressing the relevant determinations.
Jonathon Miller, the managing director of Kraken’s Australian operations, expressed surprise at ASIC’s actions, believing that the product complies with local requirements. He stated, “We have been attempting to constructively engage with ASIC on this matter for some time to ensure our product offering, as an AUSTRAC-registered Digital Currency Exchange, remains compliant.”
He continued, “We are therefore both surprised and disappointed to have received today’s enforcement action. We believe this product is offered in compliance with Australian law and will continue our efforts to receive clarity on this matter.”
Bit Trade’s margin trading product, described as a “margin extension” service, enables customers to receive credit extensions of up to five times the value of the collateralized assets they use.
ASIC argued that this product functions as a credit facility since it provides customers with credit for use in the sale and purchase of specific crypto assets on the Kraken exchange.
ASIC’s deputy chair, Sarah Court, emphasized that these proceedings should serve as a reminder to the crypto industry that regulators will continue to scrutinize financial products to ensure they comply with consumer protection laws in Australia.
She stated, “ASIC’s action should be a reminder of the importance to comply with the design and distribution obligations so that financial products are distributed to consumers appropriately.”
