Federal Court Ruling: ASIC Triumphs Over Kraken’s Operator Bit Trade

• ASIC won a Federal Court case against Bit Trade for failing to meet design and distribution obligations while offering margin trading.
• The court ruled that Bit Trade breached the Corporations Act by offering a product without a target market determination, violating Australian law.
• ASIC plans to seek financial penalties against Bit Trade, reinforcing its stance on enforcing regulatory compliance in the crypto industry.

The Australian Securities and Investments Commission (ASIC) secured a significant legal victory against Bit Trade, the operator of Kraken in Australia, following a Federal Court ruling on Friday. The court determined that Bit Trade failed to meet essential design and distribution obligations while offering margin trading services.

Violation of Regulatory Requirements  

The Federal Court found Bit Trade in breach of the Corporations Act, specifically section s994B(2), in October 2021. The company had been offering a “margin extension” product without a target market determination, a key requirement under Australian financial regulations. This breach led ASIC to initiate legal proceedings against Bit Trade, sending a clear message to the broader crypto industry in Australia.

ASIC’s Stance on Non-Compliance 

ASIC Deputy Chair Sarah Court emphasized that the ruling serves as a warning to the crypto industry. She stated that the regulator will continue to enforce compliance with regulatory obligations, particularly to protect consumers. The ASIC argued that Bit Trade’s margin trading product, which allowed customers to extend credit up to five times the value of their collateral, functioned as a credit facility, further violating regulations.

Bit Trade, registered with AUSTRAC, failed to design its margin extension product to meet the needs of its target market. The lack of a target market determination, as required by law, meant that the product was distributed without ensuring it was appropriate for the intended customers. This omission was a central point in ASIC’s case against Bit Trade.

Court’s Ruling and Next Steps  

Justice John Nicholas, in his August 23 judgment, concluded that Bit Trade’s issuance of the product to retail clients without a proper target market determination violated legal requirements. He further noted that the margin extension product, by allowing deferred debt payable upon eligibility cessation, constituted a credit facility.

ASIC and Bit Trade now have seven days to agree on declarations and injunctions. ASIC has also indicated its intention to seek financial penalties against Bit Trade for its non-compliance.