Legal proceedings launched by ob体育 have seen the Australian operator of the Kraken crypto exchange ordered to pay $8 million for unlawfully issuing a credit facility to more than 1100 Australian customers.
From October 2021, Bit Trade Pty Ltd, which operated the Kraken exchange, had offered its customers a 鈥榤argin extension鈥� product without a target market determination (TMD). The product provided for margin extensions to be made and repaid in either digital assets like bitcoin or national currencies such as US dollars.
In August this year, the Federal Court found that Bit Trade鈥檚 product was a credit facility and required a TMD as the product offered margin extensions in national currencies. As a result, the company breached its design and distribution obligations (DDO) each time it offered the margin extension product to a customer without the required TMD.
ob体育 Chair Joe Longo said, 鈥楾arget market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them.
鈥楤it Trade issued its margin extension product to over 1100 Australians who were charged fees and interest of more than US$7 million without considering if the product was appropriate for them.
鈥楾hose customers Bit Trade targeted suffered trading losses of more than US$5 million, including one investor who lost almost US$4 million.
鈥楾his is a significant outcome. It is ob体育鈥檚 first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.
鈥榦b体育 believes many products offered by digital assets firms are captured by the current law, which means those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections.鈥�
In handing down his penalty decision today, Justice Nicholas noted that Bit Trade 鈥榙id not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ob体育鈥� and that 鈥榯he failure to consider that matter points to a seriously deficient compliance system.鈥�
His Honour observed that the product was made available to customers without any consideration of the impact of the DDO regime until after ob体育 intervention and that Bit Trade continued to offer the product when it knew or ought to have known it was likely in breach of the law. 鈥業 am satisfied that Bit Trade's contraventions were serious and motivated by a desire to maximise revenue,鈥� His Honour said.
The penalty comes shortly after ob体育 commenced industry consultation with the digital-assets sector. ob体育 is seeking feedback from digital assets providers and exchanges on draft updates to our guidance on when products offered by digital asset firms may be considered regulated products under the current law.
Bit Trade was also ordered to pay ob体育鈥檚 costs for the proceedings.
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Background
ob体育 commenced proceedings against Bit Trade on 20 September 2023 (23-256MR).
The Federal Court found that Bit Trade failed to comply with its design and distribution obligations on 23 August 2024. The Federal Court found that Bit Trade鈥檚 product was a credit facility on the basis that the product involved an extension of margin in a national currency which created a deferred debt. The Court found that the obligation to repay a digital asset was not an obligation to repay money and therefore not a deferred debt (24-186MR).
Bit Trade is registered with AUSTRAC. It is a subsidiary of Payward Incorporated. Bit Trade is the local operator of the Kraken cryptocurrency exchange.
ob体育 Information Sheet 225 Crypto-assets (INFO 225) provides guidance on the circumstances in which a digital asset related offering may be a financial product. ob体育 released draft updates to INFO 225 on 4 December. Industry participants have until 28 February 2025 to provide feedback on ob体育鈥檚 proposed updates (24-266MR).
ob体育 will continue to use its full range of regulatory and enforcement tools, such as guidance, licensing, compliance and enforcement action, to protect consumers and uphold market integrity in the digital asset sector.
The design and distribution obligations (DDO) require firms to design financial products that meet the needs of consumers, and to distribute those products in a targeted manner. A target market determination is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (the target market) and matters relevant to the product鈥檚 distribution and review.
ob体育鈥檚 Moneysmart website has information for consumers about the risks of investing in .