Australia’s Federal Court ruled on Friday that the operator of the Kraken cryptocurrency exchange failed to meet the required design and distribution obligations for its margin trading product, according to the country’s corporate regulator.
The ruling targets Bit Trade Pty, the entity responsible for operating Kraken in Australia, a subsidiary of U.S.-based Payward Incorporated. Kraken is one of the world’s largest cryptocurrency exchanges.
The legal action began in September 2023, when the Australian Securities and Investments Commission (ASIC) launched civil proceedings against Bit Trade. ASIC accused the company of offering its margin trading product to customers without first making a target market determination, despite having been previously notified of potential compliance issues.
“This ruling serves as a stark reminder to the crypto industry about the critical importance of adhering to design and distribution obligations,” said ASIC Deputy Chair Sarah Court in a statement.
ASIC argued that the margin trading product, which involves the obligation to repay a digital asset or national currency, qualifies as a credit facility under Australian law, thereby necessitating proper consumer protections.
“It is a legal requirement for financial products to be distributed to consumers in a manner that is appropriate and compliant,” Court added.
In response to the ruling, a Kraken spokesperson expressed disappointment but affirmed the company’s willingness to comply with the court’s decision.
This legal setback comes on the heels of another challenge for Kraken. In November 2023, the U.S. Securities and Exchange Commission (SEC) sued Kraken, accusing it of illegally operating as a securities exchange without registering with the regulator.
ASIC and Bit Trade have been given seven days to agree on the necessary declarations and injunctions. ASIC has indicated its intention to seek financial penalties against Bit Trade at a later date.
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