by Jude Ayua

The Australian Securities and Investments Commission (ASIC), announced on Thursday 12 December 2024 that the Federal Court ordered Kraken exchange’s Australian operator, Bit Trade Pty Ltd, to pay a fine of AUD$8 million (US$5.1 million). The fine was a consequence of the operator’s unlawful issuance of a margin trading product that included a credit facility to over 1,100 customers. The product allowed users to borrow funds via margin extensions, repayable in either digital assets or fiat currencies.

ASIC said in its announcement that Bit Trade had been offering a “margin extension” product to its customers without preparing a Target Market Determination (TMD) since October 2021. 

ASIC filed a civil proceedings against Bit Trade in 2022, alleging the operator’s failure to adhere to rules requiring suitability assessments for its margin trading offering.

In August 2024, the Federal Court ruled that the product qualified as a credit facility and required a TMD, the justification being that it offered extensions in national currencies. The court decided that Bit Trade violated its design and distribution obligations (DDO) each time it provided the product to customers without the required TMD.

Read also: Coinbase to delist crypto assets in Europe market.

ASIC Chair Joe Longo commented on the matter, emphasizing the importance of regulatory compliance.

Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them.

Bit Trade issued its margin extension product to over 1100 Australians who were charged fees and interest of more than US$7 million without considering if the product was appropriate for them.

Those customers Bit Trade targeted suffered trading losses of more than US$5 million, including one investor who lost almost US$4 million.

This is a significant outcome. It is ASIC’s first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.

ASIC believes many products offered by digital assets firms are captured by the current law, which means those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections.

The judge in the case, Justice Nicholas, in delivering the court’s decision on 12 December 2024, noted that Bit Trade “did not turn its mind to the requirements of the DDO regime until these were first drawn to its attention by ASIC…the failure to consider that matter points to a seriously deficient compliance system.”

Kraken expressed disappointment in the court’s decision, arguing that it could hinder economic growth in Australia. The company pledged to work with policymakers and regulators as rules continue to evolve. The court’s decision in the matter is an indication of the push for stricter oversight of crypto financial products in Australia and other jurisdictions. It further shows the importance of consumer protection in the fast-developing digital asset industry.

Read also: eToro and US SEC settlement: Takeaways for digital assets operators.

Compliance in foreign jurisdictions

It is also critical for international companies to adhere to local regulatory frameworks when operating in foreign markets. The AUD$8 million fine against Kraken’s Australian operator for breaching Australia’s DDO highlights the implications of non-compliance including financial penalties and reputational damage. Bit Trade’s failure to prepare a TMD for its margin trading product exposed customers to inappropriate financial products, leading to significant losses. 

The regulatory enforcement is a reminder for global digital asset firms to align their product offerings with legal and consumer protection standards of each jurisdiction to avoid penalties and boost trust in the rapidly evolving crypto industry.

Read also: Nigeria’s EFCC has man convicted, arrests another for crypto fraud.

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Jude Ayua is a policy analyst at CAB. A lawyer, Jude is an associate at Infusion Lawyers where he is a member of the Blockchain & Virtual Assets Group. He is also a member of the Policy & Regulations Committee of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN). Jude reports and writes on crypto policy and regulations. jude@infusionlawyers.com

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