An Australian court has ruled in favor of the country’s securities regulator against the local operator of crypto exchange Kraken over design and distribution obligations when offering a margin trading product.
editorial
This content was selected, created and edited by the Finextra editorial team based on its relevance and interest to our community.
In 2021, Bit Trade, which operates the Kraken Exchange in Australia, began offering a “margin extension” product without a target market designation, as required by law, according to the Australian Securities and Investments Commission (ASIC).
The product included the possibility of making margin expansions and repaying either in digital assets such as Bitcoin or in local currencies. In the ASIC case, it was alleged that the obligation to repay a digital asset or local currency was a deferred debt and that the product was accordingly a credit facility.
A judge in federal court has now determined that the obligation to repay a digital asset is not an obligation to repay money and therefore does not constitute a deferred debt. However, the judge agreed with ASIC that a margin expansion in a local currency gave rise to a deferred debt, meaning the product was a credit facility.
Sarah Court, deputy chair of ASIC, said: “Today’s result is a stark reminder to the crypto industry of the importance of meeting design and distribution obligations.”
“It is a legal requirement that financial products are marketed appropriately to consumers. Consumers should have full legal protection when trading crypto asset products and we will continue to take action to ensure this happens.”
A Kraken spokesperson says: “Overall, we are disappointed with today’s decision, but we are ready 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.