Kraken Stumbles into Legal Crosshairs In Australia

Bit Trade faces regulatory heat for design and distribution obligation failure.

A gavel is chasing Kraken in the Australian landscape.
Created by Kornelija Poderskytė from DailyCoin
  • The ASIC launched a lawsuit against Bit Trade.
  • The filing comes after the regulators served an initial warning.
  • The AISC is seeking penalties in court.

2023 has been a challenging year for the cryptocurrency industry, with regulators worldwide intensifying efforts to regulate the asset class. While some governments have enthusiastically embraced the technology, others have imposed stricter regulatory measures than usual.

In the latest twist, Bit Trade, cryptocurrency exchange Kraken’s Australian service provider, is facing regulatory scrutiny as the Australian Securities and Investments Commission (ASIC) casts a shadow of uncertainty over its operations with a lawsuit.

On September 21st, the ASIC initiated civil penalty proceedings in the Federal Court against Bit Trade Pty Ltd, Kraken’s trading company operator in Australia, for non-compliance with virtual asset design and distribution obligations.

The ASIC’s allegations center on Bit Trade’s failure to establish a target market determination for its margin trading product before offering it to Australian users.

Bit Trade’s margin product, offered on the Kraken exchange as a ‘margin extension,’ offers credit to customers for trading certain crypto assets on the Kraken exchange. According to the commission, the product has incurred a total loss of approximately $12.95 million for investors since the design and distribution obligations were enacted on October 5, 2021. 

The ASIC stated that it notified Bit Trade of its concerns in June 2022, but the platform continued to offer the product without making the required adjustments.

The commission is now seeking declarations, penalties, and court orders to prohibit Bit Trade from further operations that violate its regulatory standards. 

Regulations in Australia 

The ASIC has a history of taking strong regulatory actions to protect consumer interests and mitigate risks associated with crypto derivatives for regional investors.

On September 5th, an official report expressed the commission’s dissatisfaction with high-risk crypto product offerings and the harms they pose. The agency thereby announced measures to strengthen the regulation of over-the-counter (OTC) derivative products.

ASIC Deputy Chair Sarah Court emphasized that the commission will continue scrutinizing products offered within the crypto industry to ensure compliance with regulatory obligations and safeguards for users within the region.

On the Flipside

  • The Australian Senate Economics Legislation Committee rejected a Digital Assets (Market Regulation) Bill on September 4, 2023.
  • Australia’s Design and Distribution Obligations (DDO) requires firms to offer and market financial products in a ‘targeted manner.’
  • The ASIC has launched a website to allow investors to verify information and risks attached to virtual assets.

Why This Matters

The ASIC’s legal actions against Bit Trade underscore the regulator’s commitment to enforcing compliance within the cryptocurrency industry to safeguard consumers’ interests. The outcome of this case may set a precedent for similar cases in the future, potentially on a global scale.

Discover more details of the rejected market regulation bill in Australia:
Australian Senate Committee Rejects Crypto Regulation Bill

Read more on PayPal’s latest integration of PYUSD on Venmo for increased stablecoin accessibility
PayPal Extends PYUSD Accessibility to Venmo Users

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Grace Abidemi

Grace Abidemi, a cryptocurrency reporter at DailyCoin, covers industry developments and trends. She previously worked as a freelance writer. With a Bachelor's degree in German Language and certifications in marketing and storytelling, Grace creates engaging content. When not working, she's in Nigeria, mastering cooking and canvas painting, and enjoys learning about different cultures and languages.