The Federal Court today ruled Bit Trade Pty Ltd, the operator of the Kraken crypto exchange in Australia, failed to comply with design and distribution obligations when offering a margin trading product to Australian customers.
Since 5 October 2021, Bit Trade's "margin extension" product has been available to customers trading on the Kraken exchange without a target market determination, as required by law. As a result, Bit Trade contravened s994B(2) of the Corporations Act each time it made the product available to a customer.
ASIC Deputy Chair Sarah Court said, '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 scrutinise products to ensure they comply with regulatory obligations in order to protect consumers.
'Today's outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations. It is a legal requirement for financial products to be distributed to consumers appropriately. Consumers should receive the full protection of the law when dealing in crypto-asset products and we will continue to take action to ensure this happens.'
The product provided for margin extensions to be made and repaid in either digital assets (e.g. Bitcoin) or national currencies (e.g. US dollars). ASIC's case alleged that the obligation to repay a digital asset or national currency was a deferred debt and accordingly, that the product was a credit facility.
In handing down his judgment Justice Nicholas found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt.
However, his Honour agreed with ASIC that a margin extension in a national currency created a deferred debt which meant that the product was a credit facility.
ASIC and Bit Trade have been given seven days to agree on declarations and injunctions. ASIC will seek financial penalties against Bit Trade on a date to be set.
