Australian Court Sides with Regulator in Case Against Kraken’s Domestic Operator Bit Trade

Australia’s Federal Court has ruled in favor of the country’s corporate regulator, ASIC, in its case against Bit Trade Pty Ltd, the operator of Kraken’s crypto exchange in Australia.

Late Thursday, the court found that Bit Trade failed to comply with legal obligations regarding the design and distribution of its margin trading product, as noted by the Australian Securities and Investments Commission in its civil penalty proceedings initiated in September.

Bit Trade’s “margin extension” product, available to Kraken’s Australian customers since October 5, 2021, was at the center of the case. 

The court ruled that Bit Trade violated the law by offering the product without the necessary target market determination, a requirement under Australia’s Corporations Act.

Section 994B(2) of the Act mandates that companies must determine who their financial products are suitable for before offering them. This is achieved through the TMD, a document that outlines the appropriate target market for a product and how it should be sold. 

The aim is to ensure that financial products are designed and marketed in a way that meets the needs of the right customers, thereby protecting them from potential financial harm.

Justice Nicholas ruled that while the obligation to repay digital assets did not constitute a deferred debt, the requirement to repay in national currencies such as the U.S. dollar did. 

The court’s finding classified the product as a credit facility under Australian law, aligning with ASIC’s position.

“This is a significant outcome for ASIC involving a major global crypto firm,” ASIC Deputy Chair Sarah Court said in a statement. “We initiated proceedings to send a message to the crypto industry that we will continue to scrutinise products to ensure they comply with regulatory obligations in order to protect consumers.”

Bit Trade and ASIC have seven days to agree on declarations and injunctions, with ASIC expected to seek financial penalties at a later date. Bit Trade, registered with AUSTRAC and a subsidiary of U.S.-based Payward Incorporated, operates Kraken’s Australian branch.

In a statement to Decrypt, Kraken expressed disappointment with the ruling but affirmed its willingness to comply with the court’s decision.

“Today’s ruling is another reminder of how cryptoassets are a novel technology,” a Kraken spokesperson said. “We’re pleased the judge understood the nuances in this case and recognized the challenges in applying existing regulatory frameworks to innovative technologies.”