Bit Trade, the operator behind the Kraken exchange, has been fined $5 million by the Australian Securities and Investments Commission (ASIC) for unlawfully issuing a credit facility. This penalty comes after a federal court ruling found the company in breach of regulatory obligations.
According to a statement released on December 12, Bit Trade offered a “margin extension” product to over 1,100 Australian customers starting in October 2021. This product allowed users to access extended trading limits, with repayments accepted in digital assets like Bitcoin or traditional fiat currencies.
However, the court determined that this offering constituted a credit facility, which required a target market determination (TMD) under Australia’s design and distribution obligations (DDO). Bit Trade failed to meet this requirement, resulting in significant compliance violations.
It was revealed in court that Bit Trade collected over $7 million in fees and interest from its customers. Despite these earnings, trading losses exceeded $5 million, with one investor reportedly losing over $4 million.
Justice Nicholas, who presided over the case, criticized the company for prioritizing revenue over regulatory adherence. He noted that compliance measures were only addressed after ASIC’s intervention.
As a consequence, Justice Nicholas ordered Bit Trade to pay an AUD 8 million penalty (approximately $5 million) and cover ASIC’s legal costs.
ASIC Chair Joe Longo stressed the importance of target market determinations in safeguarding consumers and ensuring responsible marketing of financial products. He pointed out that this penalty, the first related to TMD breaches, serves as a warning to other firms about the repercussions of neglecting compliance.
“ASIC believes many products offered by digital assets firms are captured by the current law, which means those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections.”