The Australian Securities and Investments Commission (ASIC) has taken legal action against Bit Trade Pty Ltd, the provider of the Kraken crypto exchange in Australia, for alleged violations of design and distribution obligations (DDO) related to one of its trading products.
Bit Trade, a registered entity with AUSTRAC and a subsidiary of Payward Incorporated, is now facing civil penalty proceedings in the Federal Court.
The DDO framework mandates that financial firms design products that cater to consumers’ needs and distribute them appropriately with a target market determination. This determination specifies the class of consumers for which the product is suitable and outlines relevant distribution and review details.
Allegations Against Bit Trade
As per the official press release, ASIC’s case centers on Bit Trade’s failure to create a target market determination for its margin trading product, which it offers to Australian customers on the Kraken exchange.
According to ASIC, this margin trading product can be seen as a credit facility, providing customers with credit for trading certain crypto assets on the platform, described by Bit Trade as ‘margin extension.’ Customers are allowed extensions of credit up to five times the value of their collateral assets.
ASIC Deputy Chair Sarah Court emphasized:
These proceedings should send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers. ASIC’s action should be a reminder of the importance to comply with the design and distribution obligations so that financial products are distributed to consumers appropriately.
Bit Trade has offered its margin trading product to Australian customers via the Kraken exchange since January 2020, per the press statement.
However, ASIC alleges that since the commencement of the design and distribution obligations on October 5, 2021, approximately 1,160 Australian customers have used the margin trading product, incurring a collective loss of roughly $12.95 million.
The press release further asserts that ASIC had raised concerns with Bit Trade regarding its failure to comply with DDO requirements in June 2022. But the company continued to offer the product without a target market determination.
ASIC has responded to these allegations by seeking declarations, pecuniary penalties, and injunctions to stop the alleged contravening conduct. The Court has yet to determine a date for the first case management hearing in this matter.
However, ASIC’s commitment to ensuring regulatory standards is demonstrated by this legal action. It highlights their dedication to safeguarding consumer interests in Australia, even within the rapidly evolving cryptocurrency space.
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