Australian watchdog sues Kraken provider for alleged compliance violations

The agency alleges around 1,160 customers used the margin product, losing about $8.35 million since Oct. 2021.


Mehaniq/Shutterstock, modified by Blockworks


Australia’s financial regulator has sued Bit Trade, which operates Kraken’s crypto exchange for Australian users, over alleged non-compliance with margin trading product obligations.

The Australian Securities and Investments Commission claims that Bit Trade didn’t define a target market for the product before making it available to customers, meaning it failed to adhere to a legal requirement.

The commission asserted on Thursday that the crypto exchange’s margin trading product functions as a credit facility, as it provides customers with credit to buy and sell specific cryptoassets on Kraken.

ASIC pointed out that customers could potentially receive a credit extension of up to five times the value of the assets they use as collateral. 

Bit Trade is accused of offering this product to Kraken’s Australian customers since January 2020. Despite ASIC raising its concerns with Bit Trade in June last year, the crypto exchange allegedly persists in providing the product without determining its target market.

A Kraken spokesperson told Blockworks that the company has been attempting to constructively engage with ASIC on this matter for some time to ensure its product offering remains compliant.

“We are therefore both surprised and disappointed to have received today’s enforcement action,” the spokesperson added. “We believe this product is offered in compliance with Australian law, and will continue our efforts to receive clarity on this matter.”

Liam Bussell, who has experience in crypto-related marketing, weighed in on the matter, pointing out that Bit Trade may have lacked the necessary expertise to navigate Australia’s regulatory landscape.

“I’d doubt any homegrown Australian company that has a locally trained and hired compliance and policy team would fall afoul of an issue like this,” he told Blockworks. “Large international players want to capture the market, gain access to local fiat flows but don’t have the desire to invest huge sums to learn the local market place.” 

ASIC’s allegations stem from the implementation of the Design and Distribution Obligations (DDO) in October 2021, after which at least 1,160 Australian customers are believed to have used the product and lost around A$12.95 million ($8.35 million).

ASIC wants the court to impose fines, declare that Bit Trade did something wrong, and stop the company from continuing non-compliance with obligations.

“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,” ASIC deputy chair Sarah Court said in a statement.

The regulator also took legal action against eToro recently for a similar issue, alleging that the investment platform violated the design and distribution rules regarding its contract for difference (CFD) offering.

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