Australian Regulator ASIC Files Lawsuit Against Bit Trade for Alleged Non-Compliance with Regulatory Obligations in Crypto Exchange Operations

News | September 21, 2023 By:

On Wednesday, September 20, 2023, the Australian Securities and Investments Commission (ASIC) took legal action against Bit Trade Pty Ltd, the provider of the Kraken cryptocurrency exchange to Australian customers. ASIC alleges that Bit Trade failed to comply with the design and distribution obligations for its margin trading product offered on the Kraken exchange.

The focus of ASIC’s case is Bit Trade’s purported failure to make a target market determination for the margin trading product before offering it to Australian customers, as required by law. The margin trading product provided by Bit Trade is considered a credit facility, offering customers credit for trading certain cryptocurrencies on the Kraken exchange. Bit Trade allows customers to receive credit up to five times the value of the assets they use as collateral, which it refers to as “margin extension.”

ASIC Deputy Chair Sarah Court emphasized that these proceedings should serve as a message to the crypto industry, highlighting ASIC’s commitment to scrutinizing products and ensuring compliance with regulatory obligations to protect consumers. Court further stressed the importance of complying with the design and distribution obligations to ensure that financial products are appropriately distributed to consumers.

Bit Trade has been offering its margin trading product to Australian customers through the Kraken exchange since January 2020. ASIC alleges that since the implementation of the design and distribution obligations on October 5, 2021, at least 1160 Australian customers have used the margin trading product, resulting in a total loss of approximately $12.95 million.

ASIC initially raised concerns regarding Bit Trade’s non-compliance with the design and distribution obligations in June 2022. However, Bit Trade has continued to offer the product to Australian customers without a target market determination.

In response to the alleged contraventions, ASIC is seeking declarations, pecuniary penalties, and injunctions to prohibit the ongoing conduct. The date for the first case management hearing is yet to be scheduled.

A copy of the original filing can be found here.