ASIC Wins Legal Battle Against Kraken’s Operator Bit Trade 

Key takeaways:

• Federal Court ruled against Bit Trade, Kraken’s operator in Australia, for offering margin trading products without a target market determination

• This legal setback follows similar regulatory scrutiny in the U.S., where Kraken faces charges from the SEC for operating without proper registration.

The Australian Securities and Investments Commission (ASIC) has successfully won its court case against Bit Trade, the operator of Kraken in Australia, for failing to comply with design and distribution obligations.

 This marks a significant development in the ongoing regulation of cryptocurrency exchanges in the country.

On August 23, the Federal Court of Australia ruled against Bit Trade, determining that the company had violated legal requirements by offering a margin trading product without a clear target market determination. 

Justice John Nicholas found that Bit Trade had issued the product to retail clients without adhering to the mandatory design and distribution obligations, which are essential for offering financial products in Australia.

These obligations require firms to carefully design financial products to meet the specific needs of customers and distribute them through a targeted plan. Bit Trade’s failure to comply with these requirements led to the court’s ruling, highlighting the need for clearer regulatory guidelines in the rapidly evolving cryptocurrency market.

Kraken, one of the world’s leading cryptocurrency exchanges, stated that it would comply with the court’s decision regarding its margin trading offering in Australia. However, the exchange pointed out the ruling as an example of the lack of regulatory clarity in the country’s cryptocurrency sector. 

This legal setback for Kraken in Australia follows a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) in November 2023, accusing Kraken of operating a crypto trading platform without proper registration. 

Kraken has argued that the SEC’s approach could lead to a significant reordering of the U.S. financial regulatory structure, potentially classifying the sale of any digital asset or commodity as an investment contract at the agency’s discretion.

ASIC Deputy Chair Sarah Court described the ruling as a significant outcome for the regulator, emphasizing that it sends a clear message to the crypto industry about the importance of adhering to regulatory obligations to protect consumers. 

ASIC has announced its intention to seek financial penalties against Bit Trade and has given the two parties seven days to agree on declarations and injunctions.