Key Insights
- Australia’s federal court ruled that Bit Trade, Kraken’s local operator, failed to comply with the Corporations Act by not making a “target market determination” for its margin extension product.
- Kraken responded by citing a lack of regulatory clarity in Australia, noting the court’s inconsistent treatment of fiat and cryptocurrency extensions under the Design and Distribution Obligations.
SYDNEY (MarketsXplora) – Cryptocurrency exchange Kraken has attributed Friday’s federal court ruling against its Australian operator, Bit Trade Pty Ltd, to a lack of regulatory clarity in the country’s cryptocurrency regulations.
The Australian Securities and Investments Commission (ASIC) brought a lawsuit against Bit Trade, alleging that the company had failed to comply with Section 994B of the Corporations Act. This section mandates that issuers of financial products must make a “target market determination” before launching products to consumers.
ASIC Deputy Chair Sarah Court stated,
“This is a significant outcome for ASIC involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”
The court found that since October 5, 2021, Bit Trade’s ‘margin extension’ product had been available to customers trading on the Kraken exchange without the required target market determination.
In response to the ruling, a Kraken spokesperson highlighted the inconsistency in the judgment, stating,
“The Court found that Kraken’s Margin offering is subject to a set of regulations called the Design and Distribution Obligations when we extended fiat currency to clients, but not when we extended cryptocurrency to clients.”
The exchange emphasized its commitment to regulatory compliance while advocating for greater legal clarity in cryptocurrency and Web3 regulations in Australia.
Interestingly, while the judge decided that repaying a digital asset wasn’t equivalent to repaying money and therefore not a deferred debt, he agreed with ASIC that a loan in traditional currency was a credit facility because it created deferred debt.
ASIC and Bit Trade have been given seven days to agree on declarations and injunctions, with the regulator indicating its intention to seek financial penalties against the Kraken operator.
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