Australian court sides with regulator in case against Kraken

• Kraken was found guilty of offering its product in Australia without identifying the target market and without providing a credit facility.
• ASIC, the regulator that filed the lawsuit, and Kraken's local branch, Bit Trade, have seven days to negotiate a settlement.

An Australian Federal Court has ruled against Kraken's local subsidiary Bit Trade in a case brought by the Australian Securities and Investments Commission (ASIC). The regulator claimed that Bit Trade launched its product without meeting design and distribution obligations, thereby breaching financial regulations.

ASIC announced its victory on X: “The Federal Court has ruled that Bit Trade, the operator of the #cryptoexchange Kraken in Australia, breached its design and distribution obligations when it offered a margin trading product to Australian customers.”

Judge John Nicholas agreed with ASIC's allegations and found that Bit Trade had broken laws by “issuing the product to retail customers without first making a target market determination for the product.” Australia requires service providers to tailor their products to customers' needs, so Kraken's Bit Trade was found guilty of failing to take steps to determine those needs.

ASIC accused Bit Trade of also operating a credit facility that violated regulations

ASIC also accused Bit Trade of operating a credit facility because it allowed users to increase their credit by up to five times their digital assets deposited as collateral – another breach of regulations. Judge Nicholas agreed in part: “A margin extension in a national currency gave rise to a deferred debt, which meant the product was a credit facility.” However, he “found that the obligation to repay a digital asset was not an obligation to repay money and therefore did not constitute a deferred debt.”

So Bit Trade will have to pay fines for acting as a credit facility for expanding margins in Australian and US dollars and also for failing to identify a target market. According to ASIC's announcement, the judge gave both parties seven days to “agree to declarations and cease and desist orders.” ASIC “will seek financial penalties against Bit Trade.”

Sarah Court, deputy chair of ASIC, said of the ruling: “This is a significant outcome for ASIC involving a major global crypto company. We have initiated the proceedings to send a message to the crypto industry that we will continue to closely scrutinise products to ensure they comply with legal obligations to protect consumers.”