Australia Fines Kraken’s Operator Bit Trade $5 Million for Regulatory Violations

Highlights:

• The Australian operator of Kraken, Bit Trade, failed to meet compliance obligations and received a $5.1 million fine.
• The firm imposed $7 million in fees on 1,100 Australians, with losses exceeding $5 million.
• ASIC’s first penalty for TMD violation highlights regulatory concerns in Australia’s crypto market.

Australia’s Federal Court fined Bit Trade, the Australian operator of U.S.-based crypto exchange Kraken, 8 million Australian dollars ($5.1 million). The Australian Securities and Investments Commission (ASIC) stated that the penalty was for failing to comply with design and distribution obligations and providing credit facilities to over 1,100 customers without a license. 

Last year, ASIC commenced civil proceedings against Kraken’s Operator for failing to comply with regulations. The regulator stated that since October 2021, Bit Trade had offered a margin extension product that allowed users to trade crypto or fiat with leverage. However, the company sold the product without a required document called a Target Market Determination (TMD). This document ensures the product is only offered to the right customers.

“Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them,” ASIC Chair Joe Longo said. He mentioned that over 1,100 Australians used the product. They faced over $7 million in fees and interest, with losses surpassing $5 million.

ASIC Issues First Penalty for TMD Violation

Justice Nicholas described Kraken’s operator actions as “serious” and driven by a desire to maximize revenue. He added that the company only addressed compliance requirements after ASIC raised the issue. Nicholas pointed out that ASIC issued this as the first penalty for lacking a TMD. He also reminded digital asset firms to review their regulatory compliance obligations.

After Bit Trade became aware that ASIC required a TMD for the product, it had two options: create one or limit the product to non-retail clients. However, Bit Trade chose to continue offering the product to retail clients. In his statement, Longo said the regulator believes that current law covers many crypto products. He also emphasized that these products must be designed and marketed to the right consumers to ensure proper protection for Australians.

The Federal Court imposed the penalty four months after determining that Bit Trade’s product was a credit facility without a TMD. In August, the court ruled that the Kraken’s Operator failed to meet its design and distribution every time the product was offered.

COURT SLAMS KRAKEN’S BIT TRADE FOR COMPLIANCE FAIL

An Australian court hit Kraken’s Aussie branch, Bit Trade, with a compliance ruling.

The ruling sided with ASIC, saying Bit Trade missed the mark on design and distribution rules and operated as an unlicensed credit facility.… pic.twitter.com/JtHjxbCAS0

— IBC Group Official (@ibcgroupio) August 23, 2024

Kraken Criticizes ASIC for Regulatory Uncertainty

In September, Kraken expressed concerns over Australia’s lack of regulatory clarity after the Federal Court ruled against its fiat margin trading product. Kraken said Australian crypto investors and businesses are experiencing an uncertain regulatory environment.

Further, the company added:

“This ruling makes it clearer than ever that bespoke crypto regulation is urgently needed.” 

ASIC has also taken action against other financial service providers for breaching design and distribution rules. For example, eToro, a multi-asset broker, faced similar action for issues with its contracts for differences.