Kraken operator loses case in Australia over margin trading product

Key Takeaways

• Bit Trade failed to comply with design and distribution obligations for its margin trading product.
• ASIC plans to seek financial penalties against Kraken's Australian operator.

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The Australian operator of Kraken exchange, Bit Trade Pty, has lost a case in Australia’s Federal Court over its margin trading product. As Reuters reported, the court ruled that Bit Trade failed to comply with design and distribution obligations, according to Australia’s corporate regulator.

The Australian Securities and Investments Commission (ASIC) initiated civil proceedings against Bit Trade in September 2023, alleging that the company failed to make a target market determination before offering the product to customers.

“Today’s outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations.” She added, “It is a legal requirement for financial products to be distributed to consumers appropriately,” stated ASIC Deputy Chair Sarah Court.

ASIC’s case argued that the obligation to repay a digital asset or national currency was a deferred debt, making the product a credit facility.

“Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision,” a Kraken spokesperson responded to the rulling.

ASIC and Bit Trade have been given seven days to agree on declarations and injunctions. The regulator plans to seek financial penalties against the operator at a later date.

This legal setback for Kraken in Australia follows a November 2023 lawsuit by the US Securities and Exchange Commission, which accused Kraken of operating a crypto trading platform without proper registration.

In the case, Kraken argued that the regulator is attempting to expand its regulatory scope by using vague terms like investment “concept” and “ecosystem” as substitutes for well-defined legal terms such as “investment contract” and “enterprise.”

Notably, the exchange even pointed out that the SEC’s approach could result in a significant reordering of the US financial regulatory structure, transforming the sale of any digital asset or commodity into an investment contract at the agency’s discretion.

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