Australia Fines Kraken Operator Bit Trade $8 Million for Compliance Violations
On Thursday, the Australian Securities and Investments Commission (ASIC) fined Bit Trade Pty Ltd, operator of Kraken’s Australian cryptocurrency exchange, up to $8 million for violating federal securities laws.
According to the announcement, the penalty resulted from Bit Trade’s unlawful provision of a margin extension product to over 1,100 Australian clients without meeting necessary regulatory requirements.
Kraken’s Australian Subsidiary and Its Operations
Bit Trade Pty Ltd, a subsidiary of Payward Incorporated, became Kraken’s Australian exchange operator in 2020. The firm is registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC) to provide cryptocurrency services under Kraken’s name.
Regulatory concerns arose when authorities found that Bit Trade offered a ‘margin extension’ product to customers without obtaining a legally required target market determination (TMD). This product allowed borrowing and repayment in digital currencies like Bitcoin or fiat currencies such as the US dollar.
ASIC confirmed the violations during a Federal Court investigation in August, revealing breaches of design and distribution obligations (DDO) each time the product was offered without a valid TMD.
“Bit Trade issued its margin extension product to over 1100 Australians who were charged fees and interest exceeding US$7 million without assessing if the product was suitable for them,” ASIC stated.
ASIC’s First Legal Action for TMD Non-Compliance
The market watchdog disclosed that customers incurred collective losses over $5 million, including one investor losing up to $4 million.
In addition to the $8 million fine, Bit Trade must cover ASIC’s legal costs for the proceedings. This penalty marks ASIC's first enforcement action against a company for failing to have a TMD, emphasizing the need for digital asset firms to comply with regulatory obligations.
ASIC clarified that current Australian law mandates disclosure of target markets for all products offered by cryptocurrency firms. “ASIC believes many products from digital assets firms fall under this requirement, necessitating proper design and marketing to ensure consumer protection,” stated the press release.
Justice Nicholas noted that Bit Trade did not address DDO requirements until ASIC intervened, describing the oversight as indicative of a “seriously deficient compliance system.”
This ruling aligns with ASIC’s ongoing consultation with the digital asset sector, seeking input on proposed updates to guidelines regarding when products from digital asset firms qualify as regulated under existing laws.