Australian Kraken Operator Faces $5.2 Million Fine

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As a seasoned crypto investor with more than a decade of experience under my belt, I’ve seen the good, the bad, and the ugly sides of this rapidly evolving market. The recent AUD 8 million fine imposed on Bit Trade, the Australian operator of Kraken, for unlawfully issuing credit facilities without proper market determination is a stark reminder of the importance of regulatory compliance in the crypto space.

Kraken’s Australian operator, Bit Trade, has been penalized AUD 8 million for providing credit facilities illegally, without accurately determining the market value first.

As a researcher, I recently discovered that I, along with my team at Bit Trade, the operator of the Kraken crypto exchange in Australia, have been penalized an equivalent of AUD 8 million (approximately $5.2 million) due to an unlawful practice. Specifically, we extended credit facilities to over 1,100 customers without proper authorization, which contravened the rules set by the Australian Securities and Investments Commission (ASIC). This regulatory infraction has led us to accept accountability for violating our duties.

In October 2021, a new feature called the margin extension was added to the Bit Trade platform. This feature allowed customers to lend out digital assets such as bitcoin and fiat currencies like the US dollar. Yet, it’s important to note that this particular product didn’t have a defined target market, which is a mandatory legal requirement for any credit service.

As a researcher, I found myself in August, when the Federal Court made a ruling that classified the margin extension product as a credit facility. This necessitated a Terms of Mortgage Debt (TMD) for any launch of this product. Regrettably, on occasions when this determination was not made prior to launching the product, Bit Trade seemed to have acted outside its legal obligations.

ASIC Slams Bit Trade with Major Fine Over Consumer Protection Failure

As per ASIC Chair Joe Longo, TMDs (Trade Misconduct Reports) play a crucial role in shielding consumers from substandard products. He underscored that Bit Trade’s product was marketed to approximately 1,100 Australians, resulting in these customers collectively spending over 7 million US dollars on fees and interest. Some of the customers suffered significant losses; one investor alone lost approximately 3.9 million US dollars. Longo stated that this penalty serves as a stern warning to Bit Trade and a reminder to digital asset firms about the importance of complying with the rules.

In his decision, Justice Nicholas stated that Bit Trade failed to uphold its obligations regarding compliance until ASIC’s intervention. He suggested that the company knowingly offered their product, aware they were likely breaking the law. The judge further emphasized that Bit Trade’s actions indicated a desire to maximize profits at all costs, which clearly demonstrated the inattentiveness of their compliance processes.

The penalty was issued since the Australian Securities and Investments Commission (ASIC) has been engaging with players in the digital asset sector, formulating fresh regulations about when certain digital asset products fall under regulation. This situation underscores the importance for the industry to comply with legal norms and prioritize consumer protection.

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2024-12-16 14:53