The Australian Securities and Investments Commission (ASIC) has initiated civil proceedings against Bit Trade, the provider of the Kraken cryptocurrency exchange in Australia, for disregarding design and distribution requirements for one of its trading products.

ASIC Targets Margin Trading Product On Kraken

According to an official statement published on September 21, 2023, the Australian Securities and Investments Commission has brought civil charges against Bit Trade in the Federal Court.

The financial regulator alleged that the company “failed to comply with design and distribution obligations for the margin trading product it offers.”

We are suing Bit Trade, provider of the Kraken crypto exchange in Australia, for allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product. Since October 2021, customers have lost about $12.95 million https://t.co/MCRYqah0dP pic.twitter.com/zURQ2xDw7M

— ASIC Media (@asicmedia) September 20, 2023

ASIC’s design and distribution obligations are a mandatory requirement, introduced in October 2021, for companies that offer financial products in Australia. These specific obligations require firms to design financial products that meet customers’ needs and distribute the products in a targeted manner.

According to the Australian regulatory commission, Bit Trade’s margin trading product is a “credit facility” as it offers customers “credit for use in the sale and purchase of certain crypto assets on the Kraken exchange.” ASIC described the product as a “margin extension,” which allows customers to receive an extension of credit of up to five times the value of assets they use as collateral.

The Australian financial regulator claims that Bit Trade failed to make a “target market determination” for the margin trading product before offering it to Australian customers. It added that at least 1,160 Australian customers had used Kraken’s margin trading product since the design and distribution obligations became law, losing approximately 12.95 million Australian dollars.

ASIC also mentioned that it notified Bit Trade of its failure to comply with the design and distribution obligations in June 2022. However, the regulator alleged that the company continued to offer the product to Australian customers on the Kraken exchange without making the necessary evaluations.

ASIC Continues Clampdown On The Crypto Industry

Similar to its United States counterpart, the Australian Securities and Investments Commission has been quite tough on companies and entities operating in the cryptocurrency industry. ASIC deputy chair Sarah Court, in fact, called the latest action against Kraken’s provider an important “message and reminder” for the industry.

Court said in a statement:

These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations to protect consumers. ASIC’s action should be a reminder of the importance of complying with the design and distribution obligations so that financial products are distributed to consumers appropriately.

Kraken is only one of the numerous crypto companies to have faced regulatory scrutiny from the Australian financial watchdog. In August, the Australian Securities and Investments Commission filed a lawsuit against cryptocurrency exchange eToro for allegedly violating the design and distribution obligations. 

Meanwhile, in July, Bitcoinist reported the regulator’s raid on the Australian offices of Binance – the world’s largest cryptocurrency exchange – as part of ongoing investigations into the firm’s operations. Prior to this action, ASIC had already revoked the exchange’s operational license in Australia.