Australia’s federal court has ruled in favor of the Australian Securities and Investments Commission (ASIC) in a case against Bit Trade, the operator of Kraken’s crypto exchange in Australia.
Court ruling and reasons
The court found that Bit Trade failed to comply with design and distribution obligations and acted as a credit facility without a license. In September 2023, ASIC filed a civil suit against Bit Trade, arguing that its margin trading product was launched without a target market determination. According to Justice John Nicholas, issuing the product to retail clients without prior target market determination violates legal requirements.
Implications for Bit Trade
Design and distribution obligations require firms to design financial products to meet specific customer needs and distribute them through targeted plans. ASIC also argued that Bit Trade’s product allowed customers to receive credit up to five times the value of their assets, violating credit facility regulations. Justice Nicholas stated that providing a margin extension in national currency, such as Australian or US dollars, creates 'deferred debt', payable once the customer is no longer eligible for the margin extension. Thus, the product is considered a credit facility.
Statements from involved parties
ASIC and Bit Trade have been given seven days to agree on declarations and injunctions. ASIC intends to seek financial penalties against Bit Trade. ASIC Deputy Chair Sarah Court said this case sends a message to the crypto industry about the importance of compliance with regulatory obligations. A Kraken spokesperson stated that while the company is disappointed with the ruling, they are prepared to comply with the decision. 'Today’s ruling is another reminder that cryptoassets are a novel technology.'
ASIC’s victory in this case underscores the importance of compliance with regulatory requirements when offering financial products in Australia. Bit Trade is expected to face financial penalties and align its operations with the law.
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