Legal proceedings launched by the Australian Securities and Investments Commission (ASIC) have led to the Australian operator of the Kraken crypto exchange being ordered to pay $8 million for unlawfully issuing a credit facility to more than 1100 Australian customers.

From October 2021, Bit Trade Pty Ltd, which operated the Kraken exchange, had offered its customers a ‘margin extension’ product without a target market determination (TMD). The product provided for margin extensions to be made and repaid in either digital assets like bitcoin or national currencies such as US dollars.

In August 2024, the Federal Court found that Bit Trade’s product was a credit facility and required a TMD as the product offered margin extensions in national currencies. As a result, the company breached its design and distribution obligations (DDO) each time it offered the margin extension product to a customer without the required TMD.

In handing down his penalty decision today, Justice Nicholas noted that Bit Trade ‘did not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ASIC’ and that ‘the failure to consider that matter points to a seriously deficient compliance system.’

His Honour observed that the product was made available to customers without any consideration of the impact of the DDO regime until after ASIC intervention and that Bit Trade continued to offer the product when it knew or ought to have known it was likely in breach of the law. ‘I am satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximise revenue,’ His Honour said.

The penalty comes shortly after ASIC commenced industry consultation with the digital-assets sector. ASIC is seeking feedback from digital assets providers and exchanges on draft updates to our guidance on when products offered by digital asset firms may be considered regulated products under the current law.

Bit Trade was also ordered to pay ASIC’s costs for the proceedings.

ASIC commenced proceedings against Bit Trade on 20 September 2023.

The Federal Court found that Bit Trade failed to comply with its design and distribution obligations on 23 August 2024. The Federal Court found that Bit Trade’s product was a credit facility on the basis that the product involved an extension of margin in a national currency which created a deferred debt. The Court found that the obligation to repay a digital asset was not an obligation to repay money and therefore not a deferred debt.

Bit Trade is registered with AUSTRAC. It is a subsidiary of Payward Incorporated. Bit Trade is the local operator of the Kraken cryptocurrency exchange.