December 12, 202411:49 GMT+3
The Australian Securities and Investments Commission (ASIC) has successfully prosecuted BitTrade Pty Ltd, the operator of the Kraken cryptocurrency exchange in Australia, resulting in an $8 million fine.
The penalty comes as a result of BitTrade’s illegal issuance of a margin rollover product to over 1,100 Australian clients without meeting the required regulatory obligations.
Kraken fined for harming investors
BitTrade, a subsidiary of Payward Incorporated, is registered with AUSTRAC and operates the Australian Kraken exchange. In addition to the $8 million fine, the company will also cover ASIC’s legal costs.
ASIC shared: “Legal proceedings initiated by ASIC have resulted in the Australian operator of the Kraken cryptocurrency exchange being ordered to pay $8 million for illegally issuing credit facilities to more than 1,100 Australian customers.”
According to an official media release, BitTrade has offered a margin rollover product since October 2021. The product reportedly allowed clients to borrow funds, repayable in either digital assets like Bitcoin (BTCUSD) or national currencies like the US dollar.
However, the company failed to prepare a Target Market Determination (TMD). A TMD is a mandatory document that identifies the appropriate audience for financial products under Australia’s Design and Distribution Obligations (DDO).
In August 2024, the Federal Court ruled that BitTrade’s margin extension product was a credit facility under Australian law. The lack of a TMD meant the company breached its regulatory responsibilities with every offer of the product. ASIC Chairman Joe Longo highlighted the significance of the ruling.
“Target market definitions are essential to ensure that investors are not marketed with products that may inappropriately harm them,” Longo said.
He also highlighted that more than 1,100 clients had paid fees and interest totaling more than $7 million, with cumulative trading losses exceeding $5 million. Alarmingly, one investor alone lost nearly $4 million. Longo reiterated the broader implications of the decision.
Furthermore, in issuing the sentence, Judge Nicholas criticized BitTrade’s compliance practices, describing the company’s compliance system as “seriously flawed.” The court noted that BitTrade’s actions were motivated by revenue generation, an inference that stemmed from the company’s move to continue offering the product even after it became aware of potential legal violations.
Note: "BitTrade did not consider the DDO system requirements until they were first brought to its attention by ASIC."
The Design and Distribution Obligations (DDO) framework requires companies to design and responsibly distribute financial products designed to meet the needs of specific consumer groups.
Meanwhile, the case comes at a time when ASIC is increasing its scrutiny of the digital assets sector. The regulator recently began consultations with industry stakeholders, seeking to update its guidance on when digital asset offerings can be considered regulated financial products.
This consultation is open for comments until February 2025. However, ASIC’s enforcement actions highlight the risks associated with investing in digital assets.
Along with the legal challenges, Kraken is also planning to shut down its NFT marketplace. The move will allow the centralized exchange to allocate resources to upcoming projects. In October, it laid off up to 15% of its staff as part of a restructuring effort.
Despite these operational issues, the exchange plans to launch its layer-2 blockchain “Ink” in 2025. The prospect of an initial public offering (IPO) remains alive amid expected regulatory changes in the United States next year.
