Kraken Operator Bit Trade Fined $5M for Regulatory Breaches

ASIC Cracks Down on Non-Compliant Practices

The Australian Securities and Investments Commission (ASIC) has imposed a $5 million fine on Bit Trade, the operator behind the cryptocurrency exchange Kraken, for failing to meet regulatory obligations. The penalty, announced in a Dec. 12 statement, follows a federal court ruling that found the company in breach of Australia’s design and distribution obligations (DDO). The violations stemmed from Bit Trade’s “margin extension” product, introduced in October 2021, which was offered to over 1,100 Australian customers.

This product allowed users to extend trading limits with repayments in digital assets, such as Bitcoin, or traditional fiat currencies. However, the court determined that the offering fell under the classification of a credit facility, requiring a target market determination (TMD) under the DDO framework. Bit Trade’s failure to implement a TMD resulted in significant compliance breaches. The court also noted that while the product generated more than $7 million in fees and interest, trading losses exceeded $5 million, with one customer reportedly losing over $4 million.

Justice Nicholas, who presided over the case, criticized Bit Trade for prioritizing revenue over regulatory compliance. He observed that the company only addressed its compliance shortcomings after ASIC’s intervention. Highlighting the severity of the breach, he ordered Bit Trade to pay an AUD 8 million penalty—equivalent to $5 million—and cover ASIC’s legal expenses.

ASIC Chair Joe Longo underscored the importance of TMDs in protecting consumers and promoting responsible marketing of financial products. He stressed that this case marks the first penalty issued for a TMD violation, setting a precedent for the digital assets industry. Longo remarked that digital asset firms must design and market their products responsibly to meet legal standards and safeguard Australian consumers.

The ruling sends a strong message to cryptocurrency operators about the consequences of neglecting regulatory obligations. Justice Nicholas’s remarks and ASIC’s decisive action highlight the growing scrutiny on digital asset firms as regulatory authorities enforce stricter compliance measures in the sector.

This article has been refined and enhanced by ChatGPT.