Kraken’s Bit Trade Violates Australia’s Margin Trading Regulations

Australia’s Federal Court has ruled against Kraken’s local operator, Bit Trade, for failing to comply with legal obligations related to a margin trading product.

The court determined that Bit Trade, the operator of the Kraken crypto exchange in Australia, violated regulatory requirements by offering a margin trading product without adhering to design and distribution obligations.

In an August 23 press release, the Australian Securities and Investments Commission (ASIC) highlighted this ruling as a significant regulatory action against a major global crypto player. ASIC Deputy Chair Sarah Court emphasized that the regulator aims to “scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”

Since October 2021, Bit Trade’s “margin extension” product was available to Kraken customers without the required target market determination. This violated section 994B(2) of the Corporations Act, which mandates financial product issuers to identify a suitable consumer group.

The court found that while the obligation to repay a crypto asset under the margin extension product does not constitute a deferred debt, repayment in national currencies does, categorizing the product as a credit facility. ASIC and Bit Trade have seven days to agree on declarations and injunctions. ASIC is also seeking financial penalties against the company at a later date.

A spokesperson for Kraken commented that the ruling serves as “another reminder of how cryptoassets are a novel technology.”

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