Kraken Fined $8 Million by ASIC for Breaching Australian Laws
The Australian Securities and Investments Commission (ASIC) successfully prosecuted Australian Kraken cryptocurrency exchange operator Bit Trade Pty Ltd and imposed an $8 million fine.
The penalty stems from Bit Trade’s illegal issuance of margin extension products to more than 1,100 Australian customers without complying with required regulatory obligations.
Kraken fined for hurting investors
Bit Trade, a subsidiary of Payward Incorporated, is registered with AUSTRAC and operates Kraken’s Australian exchange. In addition to the $8 million fine, the company will also bear ASIC’s legal costs.
“Legal proceedings initiated by ASIC have ordered the Australian operator of the Kraken cryptocurrency exchange to pay $8 million for unlawfully extending credit facilities to more than 1,100 Australian customers,” ASIC shared.
According to an official media releaseBit Trade offers margin extension products starting from October 2021. The product reportedly allows customers to borrow funds that can be repaid with digital assets such as Bitcoin (BTC) or national currencies such as the U.S. dollar.
However, the company failed to prepare a Target Market Determination (TMD). The TMD is a mandatory document that identifies the appropriate audience for a financial product under Australia’s Design and Distribution Obligations (DDO).
In August 2024, the Federal Court ruled that Bit Trade’s margin extension product constituted a credit facility under Australian law. The lack of a TMD means the company breaches its regulatory responsibilities every time it makes a product available. ASIC Chairman Joe Longo stressed the importance of the ruling.
“Identification of target markets is critical to ensuring that investors are not exposed to inappropriately marketed products that could harm them,” Longo said.
He emphasized that more than 1,100 customers paid more than $7 million in fees and interest, and accumulated trading losses of more than $5 million. Shockingly, one investor alone lost nearly $4 million. Longo reiterated the wider implications of the decision.
In addition, Judge Nicholas criticized Bit Trade’s compliance practices when imposing the penalty, calling the company’s compliance system “seriously flawed.” The court noted that Bit Trade’s conduct was motivated by revenue generation, a conclusion stemming from the company’s continued offering of the product even after becoming aware of potential illegal conduct.
“Bit Trade did not pay attention to the requirements of the DDO regime until ASIC first brought it to its attention,” he observed.
The Design and Distribution Obligations (DDO) framework requires companies to design financial products based on the needs of specific consumer groups and distribute them responsibly.
The case comes as ASIC is increasing its Censorship in the Digital Asset Sector. The regulator has recently begun consultations with industry stakeholders. It wants updated guidance on when digital asset products can become regulated financial products.
The consultations will be open for feedback until February 2025. However, current ASIC enforcement actions highlight risk Related to digital asset investment.
Exceed Legal challenge, Kraken also plans Closes its NFT market. The move will enable centralized exchanges to allocate resources to upcoming projects. in october it Layoffs of up to 15% as part of its restructuring efforts.
Despite these operational difficulties, the exchange Plans to launch its layer 2 blockchain “Ink” in 2025. possibility initial public offering (Initial public offerings) also remain active amid expected U.S. regulatory changes next year.
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