Australia fines Kraken operator $5.1 million in legal ruling

In a landmark decision, Australia’s Federal Court has ordered Bit Trade, the Australian operator of the US-based cryptocurrency exchange Kraken, to pay a fine of 8 million Australian dollars ($5.1 million).

The penalty follows a lawsuit by the Australian Securities and Investments Commission (ASIC) over regulatory breaches, including failure to comply with design and distribution obligations and offering credit facilities without proper licensing.

Why was Bit Trade fined?

The court’s decision stems from Kraken’s offering of a leveraged “margin extension” product without the legally required Target Market Determination (TMD).

This product allowed users to trade cryptocurrencies and fiat currencies on leverage, a practice that the court found to be in breach of Australian corporate law.

ASIC’s lawsuit highlighted that more than 1,100 Australians had used the product, incurring over $7 million in fees and interest and suffering losses exceeding $5 million.

Notably, one individual investor reportedly lost almost $4 million.

Justice John Nicholas, presiding over the case, emphasized the seriousness of the violations, which he attributed to a revenue-maximization strategy by Bit Trade.

He criticized the company for continuing to offer the product to retail clients even after being made aware of the regulatory requirements.

The court’s decision exceeded Bit Trade’s request to limit the fine to AU$4 million but fell short of the AU$20 million penalty sought by ASIC, which Justice Nicholas deemed excessive.

ASIC Chair Joe Longo underscored the importance of TMDs in protecting consumers from potentially harmful financial products.

He stated that the ruling serves as a “significant outcome” and a reminder for digital asset firms to prioritize compliance with regulatory standards.

ASIC’s first penalty for failing to produce a TMD

This case marks ASIC’s first penalty for failing to produce a TMD, signalling a new level of scrutiny for the cryptocurrency sector in Australia.

ASIC Chair has noted that many products offered by crypto companies likely fall under existing laws and must be appropriately designed and marketed to safeguard consumers.

A Kraken spokesperson expressed disappointment with the court’s decision while acknowledging the recognition of their compliance efforts.

They argued that the case highlights the urgent need for bespoke cryptocurrency regulations to reduce uncertainty for businesses and investors.

However, ASIC maintained that the lack of compliance demonstrated a disregard for local laws.

The ruling comes as global regulators intensify oversight of the cryptocurrency industry, aiming to strike a balance between fostering innovation and ensuring consumer protection.

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