- ASIC imposed an $8M fine on Kraken’s Australian operator, Bit Trade, for offering unlawful margin products without required compliance measures.
- Over 1,100 Australian clients incurred significant losses, with one individual losing $4M, due to Bit Trade’s regulatory violations.
- ASIC’s action highlights the necessity for digital asset firms to meet compliance obligations, including producing mandatory Target Market Determinations.
The Australian Securities and Investments Commission (ASIC) fined Bit Trade Pty Ltd, partner of Kraken’s digital currency exchange, $8 million. The fine is related to federal securities laws because Bit Trade Pty Ltd illegally provided an extension of margin product.
Regulatory Breaches and Margin Extension Offering
ASIC revealed that Bit Trade provided margin extensions to over 1,100 Australian clients without meeting regulatory requirements. The product enabled customers to borrow and repay funds in digital assets like Bitcoin or fiat currencies.
According to ASIC, Bit Trade failed to produce a Target Market Determination (TMD), mandatory document required under Australian design and distribution obligations (DDO). Absence of this compliance measure led to over $7 million in fees and interest being charged to customers. Users collectively suffered trading losses exceeding $5 million, with one individual losing $4 million.
The Federal Court investigation, which concluded in August 2024, determined the extension product qualified as a credit facility requiring a valid TMD. ASIC Chair Joe Longo emphasized the importance of TMDs in protecting consumers from inappropriate financial products.
Legal and Financial Consequences for Bit Trade
Bit Trade’s failure to comply with the DDO regime marked ASIC’s first enforcement action involving TMD non-compliance. Beyond the $8 million fine, the company was fine to pay ASIC’s legal costs related to the case.
Justice Nicholas, who presided over the Federal Court proceedings, noted that Bit Trade’s lack of adherence to DDO requirements was considered. He stated that the company prioritized revenue generation over regulatory obligations and continued offering the product.
ASIC said that the majority of products advertised by cryptocurrency firms are regulated, meaning that firms must ensure that they were created and promoted appropriately.
The ruling aligns with ASIC’s broader efforts to regulate the digital asset sector. Currently, ASIC is consulting with cryptocurrency providers and exchanges to update its guidelines for classifying digital asset products as regulated under Australian law.
ASIC has published updates to its information sheet on crypto-assets, which clarify when digital asset-related offerings qualify as financial products. Industry participants invited to provide feedback on these proposed changes by February 2025.
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