Civil Penalty Proceedings Launched Against Bit Trade by ASIC for Alleged Violations in Cryptocurrency Exchange Operations

Civil Penalty Proceedings Launched Against Bit Trade by ASIC for Alleged Violations in Cryptocurrency Exchange Operations

Crypto News – The Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings against Bit Trade, the operator of Kraken, a cryptocurrency exchange based in Australia. The legal action follows alleged breaches of design and distribution obligations (DDO) concerning one of its trading products.

ASIC asserts that Bit Trade neglected to establish a target market determination before offering its margin trading product to Australian customers. Since the enforcement of the DDO in October 2021, ASIC claims that more than 1,160 Australian customers suffered losses amounting to approximately $12.95 million while using Bit Trade’s margin trading product through the Kraken exchange.

Design and distribution obligations are regulatory requisites applicable to Australian businesses providing financial products. These obligations mandate businesses to design financial products that align with client demands and market them in accordance with a predetermined strategy.

Bit Trade introduced its margin trading product to Australian customers via Kraken in January 2020. The regulator alleges that, subsequent to the enactment of the DDO on October 5, 2021, at least 1,160 Australian customers utilized the margin trading product, resulting in losses of approximately A$12.95 million.

ASIC had previously communicated concerns to Bit Trade regarding its non-compliance with the DDO in June 2022. Despite these warnings, Bit Trade persisted in offering the product to Australian customers without establishing a target market.

Responding to the regulatory action, Bit Trade’s margin trading product, initially categorized as a “margin extension” service, is now reclassified as a “credit facility” by the financial regulator. This product allows customers to access credit up to five times the value of their collateral for trading specific crypto assets on the Kraken exchange.

The regulator seeks declarations, pecuniary penalties, and injunctions to restrain Bit Trade from alleged further contraventions related to its margin trading product.