The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade Pty Ltd, which provides Kraken cryptocurrency exchange services to Australian clients. ASIC’s allegations center on Bit Trade’s failure to comply with design and distribution obligations (DDO) related to its margin trading product, reportedly leading to substantial customer losses.
The DDO framework, designed to protect consumers, mandates that financial firms create products tailored to customers’ needs and distribute them in a targeted and responsible manner. ASIC asserts that Bit Trade did not make a target market determination for its margin trading product before offering it to Australian customers, as required by law.
Bit Trade’s margin trading product operates as a credit facility, granting customers credit to trade select cryptocurrencies on Kraken. The credit extended can be as much as five times the value of the collateralized assets, potentially increasing financial risks for consumers.
Since implementing the DDO in October 2021, ASIC has identified over 1,160 customers using Bit Trade’s margin trading product, resulting in cumulative losses of approximately A$12.95 million ($8.35 million). The civil proceedings initiated by ASIC aim to address these alleged compliance failures.
ASIC’s Deputy Chair, Sarah Court, emphasized the importance of regulatory oversight in safeguarding consumers in the cryptocurrency sector. She stated, “These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations to protect consumers.”
Bit Trade has offered its margin trading product to Australian customers through Kraken since January 2020. Despite concerns raised by ASIC in June 2022, the company continued to provide the product without establishing a target market determination, which is a crucial element for responsible distribution under the DDO.
In response to these allegations, ASIC seeks declarations, monetary penalties, and injunctions to halt Bit Trade’s ongoing conduct. The first case management hearing’s date is yet to be scheduled by the Court. Still, this legal action underscores the importance of regulatory compliance in the cryptocurrency industry and its role in protecting consumers.
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