Cryptocurrency exchange Kraken cited the lack of regulatory clarity in Australia as the reason for Friday’s court ruling against the exchange's local operator in a lawsuit filed by the country's securities regulator.
Australia’s federal court decided today that Bit Trade Pty Ltd, Kraken’s local operator, failed to comply with Section 994B of the Corporations Act, which mandates that issuers of a financial product must make a “target market determination” before launching the product to consumers.
“Since 5 October 2021, Bit Trade’s ‘margin extension’ product has been available to customers trading on the Kraken exchange without a target market determination,” said the Australian Securities and Investments Commission (ASIC) in a statement. ASIC brought the case against Bit Trade in a lawsuit.
While Kraken said it will comply with the ruling on its margin offering, the exchange noted that Friday’s judgment is “an example” of the lack of clarity in the country’s cryptocurrency regulations.
“Specifically, the Court found that Kraken's Margin offering is subject to a set of regulations called the Design and Distribution Obligations when we extended fiat currency to clients, but not when we extended cryptocurrency to clients,” a Kraken spokesperson said in a statement shared with The Block.
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“In our view, this is an unsatisfactory position for Australian investors, and we are advocating for legal clarity in all areas of crypto and Web3 as soon as possible,” the Kraken spokesperson added.
While the judge decided that repaying a digital asset wasn’t equivalent to repaying money and therefore not a deferred debt, he agreed with ASIC that a loan in traditional currency was a credit facility because it created deferred debt, according to ASIC's statement.
“This is a significant outcome for ASIC involving a major global crypto firm,” ASIC Deputy Chair Sarah Court said. “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.”
ASIC and Bit Trade were given seven days to agree on declarations and injunctions. The regulator said in the statement that it will seek financial penalties against the Kraken operator.
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