Australia fines Kraken’s operator $5m for unlawful credit facility

Kraken’s Australian affiliate Bit Trade is facing a multimillion-dollar fine for failing to comply with rules requiring the determination of the target market for its margin expansion product.

Bit Trade, the Australian operator of the Kraken crypto exchange, has been fined AUD8 million (about $5.2 million) for providing illegal credit facilities to more than 1,100 customers, the Australian Securities and Investments Commission said on Thursday (December 2). 12.

The Federal Court ruled that the company failed to comply with Australian law requiring it to identify a target market to ensure financial products are sold to the right customers.

The regulator says that from October 2021, Bit Trade offers a margin extension product that “enables margin extensions to be made and repaid in digital assets such as Bitcoin (BTC) or national currencies such as the US dollar.” However, the product was marketed without a required target market determination, an important regulatory document aimed at ensuring that financial products are only available to eligible customers.

The court found that Bit Trade’s product violated the terms of its design and distribution obligations each time it was launched without determining the target market. The regulator claims customers were charged more than $7 million in fees and interest, while trading losses exceeded $5 million.

One investor reportedly lost nearly $4 million using the margin expansion product. In his ruling, Judge Nicholas described Bit Trade’s actions as “serious and motivated by a desire to maximize revenue”, adding that the company failed to meet compliance requirements until it was flagged by ASIC.

Commenting on the decision, ASIC Chairman Joe Longo called it a “significant outcome” and said: “This is the first penalty ASIC has taken against an entity for not having a TMD and is a reminder to digital asset companies to consider their compliance obligations.” he said. In addition to the fine, Bit Trade was also ordered to pay ASIC’s legal costs.