- Kraken was found guilty of providing its product without conducting a target market determination and operating a credit facility in Australia.
- The ASIC, the regulator that brought the suit, and Kraken’s local entity, Bit Trade, have seven days to negotiate settlements.
As a seasoned crypto investor with years of experience navigating the volatile and ever-evolving digital asset landscape, I find myself closely following the recent developments involving Kraken and its local entity, Bit Trade, in Australia.
In a legal dispute with the Australian Securities and Investments Commission (ASIC), the local arm of Kraken, known as Bit Trade, was found to be at fault by an Australian court. ASIC alleged that Bit Trade introduced its product without adhering to necessary design and distribution requirements, thereby breaching financial regulations.
“The Federal Court determined that Bit Trade, operator of the Kraken cryptocurrency exchange in Australia, did not adhere to the required standards for design and distribution when offering a margin trading product to Australian customers.”
In simpler terms, Justice John Nicholas supported the claims made by ASIC and ruled that Bit Trade had broken the law by providing a product to retail clients without first determining the appropriate market for that product. This is important in Australia because service providers are expected to customize their offerings based on their customers’ requirements, which Bit Trade failed to do.
The ASIC Accused Bit Trade of Also Running a Credit Facility That Violated Regulations
Additionally, ASIC charged Bit Trade with running a lending service because it enabled users to borrow funds equivalent to five times their digital assets’ value by using those assets as collateral. This practice, according to the regulators, was against the established rules. However, Judge Nicholas partially concurred, stating that extending margin in a fiat currency created a delayed payment obligation, making the product a form of credit. Yet, he argued that the duty to repay digital assets was not a monetary obligation and thus did not constitute a deferred debt.
As an analyst, I find myself in a position where I must disclose that Bit Trade is facing potential penalties due to its actions. Specifically, the company has been operating as a credit facility by extending margins using both Australian and US dollars, without making the necessary target market determination. In accordance with ASIC’s recent announcement, there is a seven-day timeframe for both parties to reach an agreement regarding declarations and injunctions. The ASIC has communicated their intent to impose financial penalties on Bit Trade.
Sarah Court, the Deputy Chair of ASIC (Australian Securities and Investments Commission), commented on the ruling, “This decision marks a substantial step for ASIC involving a significant international cryptocurrency company. We launched this action to convey a clear message to the crypto sector that we will diligently monitor products to make sure they adhere to regulatory requirements, thus safeguarding consumers.”
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2024-08-24 19:34