Kraken Operator Bit Trade Fined $5.2M in ‘Significant Outcome’ for Crypto Enforcement

Key Takeaways

• The Australian financial watchdog has ordered Bit Trade Pty, Kraken’s Australian operator, to pay a hefty fine for illegally issuing unvetted customers credit.
• One Australian Kraken customer allegedly lost upwards of $4 million on the crypto exchange.
• ASIC Chair Joe Longo called the penalty a “significant outcome.”

The Australian operator of the Kraken crypto exchange has been fined AUD 8 million (USD $5.2 million) by the Australian Securities & Investments Commission (ASIC) for illegally issuing a credit facility to over 1,100 customers in the country.

The move marks ASIC’s first penalty against an entity without the correct license for margin trading and has been heralded as a “significant outcome” for the agency.

Crackdown on Kraken

Bit Trade Pty, the Australian-based operator of Kraken, was found to have been offering customers a “margin extension” product without a target market determination (TMD) from October 2021, ASIC said in a news release .

Margin trading involves borrowing funds to increase trading exposure, which carries significant risks, including the potential for substantial financial loss.

The purpose of a TMD is to identify the appropriate target market for a financial product and ensure that the product is distributed only to customers who are deemed viable and not at risk.

In August, the Australian Federal Court found that Bit Trade’s product operated as a credit facility and required a TMD, according to the release.

The court found that the company breached its design and distribution obligations whenever it offered the margin extension product to a customer without the required TMD.

A Significant Outcome

ASIC Chair Joe Longo called the penalty a “significant outcome,” saying it will remind digital asset firms to consider regulatory compliance obligations.

According to Longo, targeted customers suffered trading losses of over $5 million, with one investor losing almost $4 million.

Justice John Nicholas, handing the penalty decision, said Bit Trade only appreciated its need to follow Australia’s Design and Distribution Obligations once the ASIC got involved. This pointed to a “seriously deficient compliance system,” the judge said.

“I am satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximize revenue,” the judge added.