Australia’s Securities Regulator Wins Case Against Kraken’s Local Operator

As a seasoned researcher who has followed the crypto market for years, I find this ruling by the Federal Court of Australia to be both significant and long overdue. The lack of clarity in the regulations surrounding cryptocurrency offerings in Australia has been a thorn in the side of investors and operators alike.

On Friday, it was determined by the Federal Court of Australia that Bit Trade Pty Ltd, the operator of cryptocurrency exchange Kraken in Australia, violated a specific provision of the Corporations Act. The legal action against Bit Trade was initiated by the Australian Securities and Investments Commission (ASIC).

According to Section 994B of the Corporations Act, before a company can sell a financial product to customers, it must first determine the appropriate target market for that product.

In simpler terms, Judge Nicholas ruled that Bit Trade violated section 994B(1) of the Corporations Act by providing a product to retail clients without first identifying who the product was intended for, as required by sections 994B(2).

Starting from October 5th, 2021, Bit Trade’s “margin extension” service has been accessible to clients trading on the Kraken platform, despite the legal requirement for a target market determination.

In simpler terms, the court ruling indicated that the requirement to return a digital asset doesn’t equate to returning money and thus isn’t considered a delayed payment. However, the court concurred with ASIC that extending the margin in a national currency resulted in a delayed payment, which classifies the product as a credit facility.

As a researcher speaking on behalf of our team at Kraken, I must express my disappointment with today’s court ruling. However, we are committed and ready to abide by the court’s decision. It is heartening to see that the judge has grasped the intricacies involved in this case and acknowledged the hurdles in applying conventional regulatory structures to pioneering technologies.

Kraken’s legal representative pointed out the verdict as evidence that “the Australian laws regarding crypto offerings are unclear,” explaining further that “the court determined that Kraken’s Margin service falls under a specific set of regulations known as Design and Distribution Obligations when we offered fiat currency to our clients, but not when we provided cryptocurrency.”

“For Australian investors, this situation isn’t ideal. Ideally, we’d address it via legislative changes, but at least we now have a court ruling on our Margin offering, which provides clarity. We’ll act swiftly to conform and maintain our commitment to our customers.”

The regulatory body, ASIC, has informed the involved parties that they have a week, or seven days, to reach an agreement regarding declarations and legal orders. Additionally, ASIC stated its intention to impose fines on Bit Trade if necessary.

Sarah Court, ASIC’s Deputy Chair, commented, “This result is substantial for ASIC concerning a prominent worldwide cryptocurrency company. We started legal action to convey a strong message to the crypto sector that we will persistently monitor products to make sure they adhere to regulatory requirements, thereby safeguarding consumers.”