Bit Trade, the operator of the Kraken cryptocurrency exchange in Australia, is facing legal action by the Australian Securities and Investments Commission (ASIC) for failing to comply with design and distribution requirements for one of its trading products. The ASIC alleges that Bit Trade neglected to establish a target market determination before offering its margin trading product to Australian clients.
Under the design and distribution obligations, financial product providers are required to design products that meet predetermined customer needs and distribute them through targeted strategies. These obligations are meant to ensure that financial products are distributed to consumers in a responsible manner.
ASIC claims that since these obligations were implemented in October 2021, Bit Trade’s margin trading product has been used by at least 1160 Australian customers, resulting in a collective loss of $8.35 million (12.95 million Australian dollars). Despite being notified of its non-compliance in June 2022, Bit Trade continued to offer the product without fulfilling the necessary determinations.
Bit Trade’s margin trading product functions as a “margin extension” service, offering credit extensions of up to five times the value of customers’ collateral assets. ASIC argues that this product qualifies as a “credit facility” and provides customers with credit for trading certain cryptocurrencies on the Kraken exchange.
The ASIC’s deputy chair, Sarah Court, stressed the importance of complying with design and distribution obligations to ensure that financial products are distributed in a responsible manner. She stated that ASIC’s actions serve as a reminder to the crypto industry that financial products will continue to face scrutiny by regulators to protect consumers.
This legal action against Bit Trade highlights the increasing regulatory focus on the cryptocurrency industry globally. As cryptocurrencies gain popularity and become more integrated into the financial system, regulators are keen on ensuring that consumer protection laws are upheld and that financial products meet certain standards.