An Australian court has ruled in favour of the country’s securities regulator against the local operator of the Kraken crypto exchange over design and distribution obligations when offering a margin trading product.
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In 2021, Bit Trade, which operates the Kraken Exchange in Australia, began offering a “margin extension” product without a target market determination, as required by law, says the Australian Securities and Investments Commission (ASIC).
The product provided for margin extensions to be made and repaid in either digital assets such as Bitcoin or national currencies. ASIC’s case alleged that the obligation to repay a digital asset or national currency was a deferred debt and accordingly, that the product was a credit facility.
In Federal court, a judge has now found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt. However, the judge agreed with ASIC that a margin extension in a national currency created a deferred debt which meant that the product was a credit facility.
ASIC deputy chair Sarah Court says: “Today’s outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations.
“It is a legal requirement for financial products to be distributed to consumers appropriately. Consumers should receive the full protection of the law when dealing in crypto-asset products and we will continue to take action to ensure this happens.”
A Kraken spokesperson says: “Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision.”
ASIC and Bit Trade have seven days to agree on declarations and injunctions. ASIC says it will seek financial penalties.
