Australia Fines Kraken $5M for Unlawful Credit Facility

Australia’s Federal Court has imposed an estimated $5 million (8 million AUD) fine on Bit Trade, the Australian operator of Kraken, a US-based cryptocurrency exchange. The penalty follows the company’s failure to meet design and distribution obligations and operate as a credit facility without proper licensing.

Justice John Nicholas ordered Bit Trade to pay the fine within 60 days and cover court costs. Although the Australian Securities and Investments Commission (ASIC) sought a $12.8 million fine, Nicholas deemed the amount “excessive.” However, the court rejected Bit Trade’s proposal to limit the fine to $2.5 million, calling it “insufficient.”

Bit Trade’s “Margin Extension” Product Under Scrutiny

ASIC’s lawsuit, filed in September 2023, accused Bit Trade of offering a “margin extension” product that allowed users to trade cryptocurrency and fiat with leverage, bypassing legal requirements for a target market determination (TMD). Justice Nicholas criticized the company for prioritizing revenue over compliance with Australian corporate laws, describing its actions as serious violations.

Despite being alerted by ASIC about the need for a TMD, Bit Trade continued to offer the margin extension product to retail clients without addressing the compliance issue. Nicholas highlighted the company’s disregard for regulatory requirements until ASIC intervened.

ASIC Chair Joe Longo underscored the critical role of TMDs in protecting investors, stating that they help prevent unsuitable products from being marketed to consumers. He also disclosed that more than 1,100 Australians utilized Kraken’s margin product, resulting in total fees and interest exceeding $7 million, along with losses surpassing $5 million. Notably, one investor suffered a nearly $4 million loss, highlighting the severe financial risks tied to such offerings.

Longo further emphasized that the case demonstrates the necessity for digital asset companies to meet their regulatory obligations. He noted that ASIC’s action marks its first penalty for failing to issue a TMD, signaling the regulator’s commitment to enforcing compliance.

Kraken’s Response To Court Ruling

In response to Nicholas’s ruling, Kraken expressed disappointment with the outcome. The company acknowledged its compliance efforts but criticized the decision for hindering growth in the Australian economy.

The exchange argued that the case highlights the need for tailored crypto regulations to resolve the confusion and uncertainty faced by businesses and investors in the sector.