Kraken Australian operator fined AU$8 Million for regulatory breaches
Kraken operator fined AUD 8M for rule violations
The Australian Securities and Investments Commission (ASIC) has filed a case against Bit Trade Pty Ltd, the Australian operator of the Kraken cryptocurrency exchange, resulting in a penalty of AUD 8 million.
The company was found guilty of unlawfully offering a credit facility without required compliance measures to over 1,100 Australian customers.
Unlawful margin extension
Between October 2021 and August 2023, Bit Trade offered a “margin extension” product that allowed customers to borrow funds for trading, repayable either in digital assets like Bitcoin or in national currencies such as U.S. dollars. However, the company failed to provide a target market determination (TMD) as required under Australia’s design and distribution obligations (DDO). This oversight constituted a violation of financial product regulations each time the margin product was offered, according to ASIC's official statement.
In August 2023, the Federal Court ruled that Bit Trade’s margin extension was a credit facility under the law, requiring a TMD to ensure the product was marketed appropriately to suitable customers.
Customer losses and regulatory criticism
ASIC Chair Joe Longo underscored the severity of the violation and the harm caused to Australian investors. “Bit Trade issued its margin extension product to over 1,100 Australians, charging fees and interest exceeding AUD 7 million, without assessing whether the product was appropriate for them,” Longo said.
The regulator reported trading losses exceeding USD 5 million, including one customer who incurred losses of nearly AUD 4 million. Longo added, “This is ASIC’s first penalty for failing to provide a TMD. It serves as a stark reminder to digital asset firms of their regulatory compliance obligations.”
Court findings
Justice Nicholas criticized Bit Trade in his ruling for neglecting its legal obligations under the DDO framework until ASIC’s intervention. “The failure to consider compliance with the DDO regime indicates a seriously deficient compliance system,” he stated.
The court found that Bit Trade continued offering the non-compliant product even after becoming aware of its legal shortcomings. Justice Nicholas concluded, “Bit Trade’s violations were serious and driven by a desire to maximize revenue.”
Industry implications
The penalty highlights ASIC’s increasing focus on the digital asset sector. The regulator recently initiated industry consultations to clarify guidelines on when products offered by digital asset firms may fall under existing financial laws.
In addition to the AUD 8 million fine, Bit Trade was ordered to cover ASIC’s legal costs, solidifying the ruling as a landmark case in regulatory compliance within the cryptocurrency industry.
Despite its challenges in Australia, Kraken previously excelled at the Customer Centricity World Series (CCWS) 2024 awards, showcasing its innovation and customer-centric approach.
