By 
Australia’s federal court has ruled in favor of the Australian Securities and Investments Commission (ASIC) in a case against Bit Trade, the operator of Kraken’s cryptocurrency exchange in Australia.
The court determined that Bit Trade failed to meet design and distribution obligations and operated as a credit facility without the required license.
The legal battle began in September 2023 when ASIC filed a civil suit against Bit Trade, alleging that the company had launched a margin trading product without first determining a target market, a legal requirement to identify the appropriate customer base.
In his August 23 judgment, Justice John Nicholas concluded that Bit Trade violated these legal obligations by “issuing the Product to retail clients without having first made a target market determination for the Product.”
Design and distribution obligations are mandatory under Australian law for financial products. These requirements compel firms to design products tailored to specific customer needs and distribute them through a targeted plan.
ASIC also argued that Bit Trade’s margin trading product, which allowed customers to extend credit up to five times the value of their collateral, effectively functioned as a credit facility, thus breaching regulatory standards.
Justice Nicholas supported this view, stating, “The provision of a Margin Extension in national currency, including in Australian or U.S. dollars, gives rise to a ‘deferred debt’ which is incurred by the customer when they are provided with the Margin Extension.” This deferred debt, he explained, “becomes payable upon the customer ceasing to be eligible to receive the Margin Extension. It follows that the Product is a credit facility.”
ASIC and Bit Trade now have seven days to agree on declarations and injunctions, with ASIC intending to pursue financial penalties against Bit Trade.
Responding to the ruling, ASIC Deputy Chair Sarah Court emphasized the importance of compliance within the crypto industry, stating, “Today’s outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations. It is a legal requirement for financial products to be distributed to consumers appropriately.”
A Kraken spokesperson expressed disappointment with the ruling but affirmed the company’s commitment to compliance. “We’re pleased the judge understood the nuances in this case and recognized the challenges in applying existing regulatory frameworks to innovative technologies,” the spokesperson said.
Kraken, a U.S.-based crypto exchange, acquired Bit Trade in 2020, obtaining its license to operate in Australia.
Comments