Australian Court Rules Against Kraken’s Local Operator Over Regulatory Breach

Australia’s Federal Court has ruled against Bit Trade Pty Ltd, the local operator of the Kraken cryptocurrency exchange, for violating regulatory requirements concerning its margin trading product.The Australian Securities and Investments Commission (ASIC) brought the case, arguing that Bit Trade failed to comply with section 994B of the Corporations Act, which mandates a “target market determination” for financial products before offering them to consumers.

The court found that Bit Trade’s “margin extension” product, available to Kraken users since October 2021, was offered without the necessary target market determination. Justice Nicholas J determined that “By issuing the Product to retail clients without having first made a target market determination for the Product, Bit Trade contravened s 994B(1) of the Corporations Act when read with s 994B(2).” ASIC highlighted that the obligation to repay digital assets under this product did not constitute a deferred debt, but repayment in national currency did, making the offering a credit facility.

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

ASIC also mentioned that it is seeking financial penalties against Bit Trade, with both parties given seven days to agree on declarations and injunctions.

In response to the ruling, a Kraken spokesperson said, “Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision.”

The company noted that the judgment illustrates the challenges of applying existing legal frameworks to new technologies. The spokesperson added, “We’re pleased the judge understood the nuances in this case and recognized the challenges in applying existing regulatory frameworks to innovative technologies.”

Kraken’s legal team further commented that the court’s decision clarified that the margin product was subject to specific regulations when fiat currency was extended to clients, but not when the extension involved cryptocurrency.

“This is an unsatisfactory position for Australian investors. While we prefer that to be through legislative reform rather than test cases, at least we now have clarity from the court in respect of our margin offering, and will move quickly to comply and continue to service our customers,” Kraken’s legal representative said.

Lawrence does not hold any crypto asset. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.

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