The court in Australia has ordered Kraken to pay AU$5.1 million in compensation for breach of the margin lending product provisions. This is indeed an amplifying moment for the Australian Securities and Investments Commission (ASIC), as it signifies the heightened level of scrutiny that it has begun to introduce to cryptocurrency players in the country.
The Breach: Margin Lending without a License
The fine was for Kraken’s “margin extension” product, which was offered to over 1,100 Australian customers since October 2021 but didn’t meet regulatory requirements. The product reportedly allowed users to borrow money to trade and repayments could be made in cryptocurrencies like Bitcoin or fiat currencies like the US dollar.
In August, an Australian Federal Court found that Bit Trade, Kraken’s Australian operator, breached the country’s Design and Distribution Obligations (DDO) laws by not producing a target market determination. A target market determination means financial products are marketed appropriately and align with investors’ needs and risks.
ASIC’s Statement and Customer Losses
ASIC Chair Joe Longo said, “Target market determinations are crucial to make sure investors aren’t being marketed products that can harm them. Bit Trade issued its margin extension product to over 1,100 Australians who were charged fees and interest of over $7 million without considering if the product was right for them.”
Longo said customers lost more than $5 million USD through Kraken’s margin lending service, including one who lost almost $4 million. This is the first time ASIC has fined a crypto exchange for not providing a TMD.
Federal Court Decision
Justice Nicholas, who heard the case, said Bit Trade’s compliance system was “seriously deficient”. The company continued to offer the product despite being told they were non-compliant. Justice Nicholas found the contraventions were “serious and driven by a desire to make more money.”
Bit Trade has now reportedly been ordered to pay ASIC’s legal costs on top of the $5.1 million AUD fine.
Conclusion: Implications for Kraken and the Crypto Industry
The fine shows ASIC is serious about holding crypto platforms accountable to Australian financial laws. It is clearly a warning to other cryptocurrency exchanges that are non-compliant.
This might make Kraken relook at its operations and compliance structures in jurisdictions that are increasing their regulatory requirements. Kraken hasn’t commented on the ruling, but the fine could have broader implications for other crypto platforms to get ahead of the curve in complying with the laws.
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FAQs
1. What is Kraken?
Kraken is a global exchange for cryptocurrencies. It allows users to buy, sell or trade-in different cryptocurrencies wherever they are. Kraken also provides many options for trading when it comes to margins and futures.
2. Why was Kraken fined in Australia?
Kraken was ordered to pay $5.1 million AUD for providing a margin lending product without a target market determination- a regulatory requirement under Australia’s Design and Distribution Obligations (DDO) laws.
3. What is a target market determination (TMD)?
A TMD is a regulatory document that makes sure financial products are marketed to the right audience. It checks if the product is right for the intended users.
4. What does this mean for Crypto Exchanges in Australia?
The fine is a sign of increased scrutiny of crypto platforms in Australia. Exchanges here have to play by the rules of local financial regulators or face fines, just like Kraken.
