The operator of the Kraken crypto exchange was found to have failed to comply with design and distribution obligations by Australia’s Federal Court on Friday (August 23).
The ruling focuses on the design and distribution obligations when offering a margin trading product to Australian customers.
This margin extension product has been available to customers trading on the Kraken exchange since 5 October 2021. The government-based regulator says this was done “without a target market determination, as required by law.
“As a result, Bit Trade contravened s994B(2) of the Corporations Act each time it made the product available to a customer.”
Bit Trade is the local operator of the Kraken cryptocurrency exchange in Australia and is a subsidiary of Payward Incorporated.
Following the ruling, the deputy chair of the Australian Securities and Investments Commission Sarah Court said: “This is a significant outcome for ASIC involving a major global crypto firm.
“We initiated proceedings to send a message to the crypto industry that we will continue to scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”
In ASIC’s case against the operator, they alleged that the obligation to repay a digital asset or national currency was a deferred debt and that the product was a credit facility.
“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.
“Consumers should receive the full protection of the law when dealing in crypto-asset products and we will continue to take action to ensure this happens.”
A spokesperson for Kraken was quoted in Reuters as saying: “Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision…”
ASIC and Bit Trade now have seven days to agree on declarations and injunctions, with ASIC to seek financial penalties against Bit Trade on a date to be set.
Image Credit: Via Ideogram
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