Australian Regulator Sues Kraken Affiliate For Causing Damages To Users A$12.95 Million

Key Points:

• Australian ASIC pursues Bit Trade, operator of Kraken in Australia, for DDO violations related to a margin trading product.
• Over 1,160 Australian customers have suffered A$12.95 million in losses due to alleged non-compliance since October 2021.
• ASIC reclassifies Bit Trade’s product as a “credit facility” and seeks penalties and injunctions.

The Australian Securities and Investments Commission (ASIC) has launched civil penalty proceedings against Bit Trade, the operator of the Kraken cryptocurrency exchange in Australia. This action comes in response to alleged violations of design and distribution obligations (DDO) for one of its trading products.

ASIC contends that Bit Trade failed to establish a target market determination before offering its margin trading product to Australian customers. Since the implementation of the DDO in October 2021, ASIC claims that over 1,160 Australian customers have suffered losses totaling approximately $12.95 million while using Bit Trade’s margin trading product through the Kraken exchange.

Legal requirements for design and distribution apply to Australian businesses that supply financial products. These requirements call on businesses to create financial products that meet client demands and market them in accordance with a predetermined strategy.

Bit Trade introduced its margin trading product to Australian customers via Kraken in January 2020. The regulator alleges that, since the DDO’s enactment on October 5, 2021, at least 1,160 Australian customers have used the margin trading product, resulting in losses of approximately A$12.95 million.

ASIC had previously raised concerns with Bit Trade about its failure to comply with the DDO in June 2022. Despite these concerns, Bit Trade continued to offer the product to Australian customers without establishing a target market.

In response to the regulator’s action, Bit Trade’s margin trading product, initially considered a “margin extension” service, is now being classified as a “credit facility” by the financial regulator. This product allows customers to access credit up to five times the value of their collateral for trading certain crypto assets on the Kraken exchange.

The regulator is seeking declarations, pecuniary penalties, and injunctions to prohibit Bit Trade from further alleged contravening conduct related to its margin trading product.

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