Australia's corporate regulator has initiated civil proceedings against Bit Trade Pty Ltd for failing to comply with design and distribution obligations for its margin trading product.
The Australian Securities and Investments Commission (ASIC) alleged that Bit Trade, the provider of the Kraken crypto exchange to Australian customers, did not make a target market determination before offering its margin trading product to Australian customers.
Design and distribution obligations (DDO) are legal requirements for firms that offer financial products in Australia, requiring products to be designed to meet the needs of customers and to be distributed in a targeted manner.
ASIC noted that Bit Trade provides credit to buy and sell certain crypto assets on the Kraken exchange, and customers are able to receive an extension of credit of up to five times the value of the assets they used as collateral. The regulator claimed that, since DDO began in October 2021, at least 1,160 customers had used Bit Trade’s margin trading product, incurring a total loss of about A$12.95 million (£6.74 million).
Despite being notified of the ASIC’s concerns in June 2022, the regulator alleged that Bit Trade has continued to offer the product without making the appropriate determinations. It is seeking declarations, pecuniary penalties and injunctions prohibiting Bit Trade's ongoing conduct.
Sarah Court, ASIC deputy chair, commented: "These proceedings should send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers.”
Bit Trade has expressed surprise and disappointment over the proceedings. Jonathon Miller, managing director of Kraken’s Australian operations, commented: “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. We are therefore both surprised and disappointed to have received today’s enforcement action.”