Australian Federal Court has ruled a penalty of AUD 8 million on Kraken, which translates to $5.1 million, against Bit Trade Pty Ltd for violating Australian regulations. This comes as ASIC took legal action against the company for providing its over 1,100 customers with an unlicensed margin trading product.
ASIC stated that the margin extension product of Bit Trade allowed its customers to borrow funds repayable either in digital assets such as Bitcoin or national currencies. The company failed to develop a Target Market Determination, one of the documents required in Australia’s Design and Distribution Obligations. The result is that the company infringed compliance rules for each and every transaction made.
The court observed that Bit Trade’s actions were financially injurious to considerable amounts as customers collectively had lost over $5 million while paying $7 million in fees and interest, and one investor alone lost his investment worth over $4 million. The case was presided over by Justice Nicholas of the High Court, who criticized Bit Trade’s compliance practices by saying they were “seriously deficient,” adding that revenue generation seemed to be the company’s primary motivation.
ASIC Chair Joe Longo underscored how TMDs protect the consumer from inappropriate financial products. He said such a decision is required for the finance industry to wake up to the regulatory constructs it needs to follow.
A spokesperson of Kraken lamented over the ruling, saying such determinations may stifle the economy, and assured to work closely with policymakers for the changing landscape of the regulations.
This is the first penalty for non-compliance with TMD requirements and shows that ASIC is increasingly interested in the digital asset sector. The regulator has also started to interact with industry stakeholders to improve its guidance on crypto-related financial products.
Kraken still faces operational challenges while closing its NFT marketplace as it pays more attention to new projects, with a Layer-2 blockchain launch scheduled for 2025.
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