Australia’s federal court has sided with the country’s financial regulator, ASIC, in a case against Bit Trade, the company that runs Kraken’s crypto exchange in Australia. The court determined that Bit Trade didn’t meet its design and distribution responsibilities and operated as a credit provider without the proper license.
In 2020, Kraken, a US-based crypto exchange, bought Bit Trade, Australia’s oldest crypto exchange. This move included acquiring Bit Trade’s license to use in Australia.
In Sept. 2023, the Australian Securities and Investments Commission (ASIC) filed a civil lawsuit against Bit Trade. Specifically, they claimed that the company launched a margin trading product without first determining and outlining who the right customers for it would be.
In his Aug. 23 ruling, Justice John Nicholas found that Bit Trade broke the law by offering the Product to retail customers without determining if it suited their target market.
Financial products and deferred debt
In Australia, it’s a legal requirement for companies to design and distribute financial products that genuinely meet the needs of their customers. These rules ensure that firms make products to meet customers’ specific needs and then market them strategically.
ASIC argued that Bit Trade violated financial regulations by offering customers credit extensions up to five times the value of their collateral, effectively operating as an unauthorized credit facility.
In his ruling, Justice Nicholas explained that when a customer receives a Margin Extension in their national currency, such as Australian or U.S. dollars, it creates a “deferred debt.” Consequently, the Margin Extension creates a debt that the customer owes.
Kraken frustrated but ready to comply
ASIC Deputy Chair Sarah Court stated that this case serves as a clear warning to the crypto industry to follow regulatory rules when operating in Australia. Moreover, she emphasized that today’s result highlights the importance of adhering to design and distribution obligations.
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