Kraken’s Australian subsidiary, Bit Trade, has been fined AUD 8 million (approximately $5.2 million) for violating financial regulations by failing to properly issue a target market determination (TMD) for its margin extension product.
The Australian Securities and Investments Commission (ASIC) announced the fine on December 12, following a ruling by the Federal Court. The court determined that Bit Trade unlawfully issued credit facilities to over 1,100 customers without ensuring that the financial product was properly targeted to suitable users.
Since October 2021, Bit Trade offered a margin extension product that allowed customers to make margin extensions and repayments using digital assets like Bitcoin or fiat currencies such as U.S. dollars. However, the product was marketed without the necessary TMD, a crucial document that ensures financial products are sold to the right audience.
The court found that each instance of the margin extension product being issued without a TMD violated design and distribution obligations, leading to customer fees and interest charges exceeding $7 million. Additionally, trading losses surpassed $5 million, with one investor reportedly losing nearly $4 million.
Justice Nicholas, in his judgment, described Bit Trade’s conduct as “serious” and driven by a desire to maximize revenue, emphasizing that the company ignored compliance obligations until ASIC raised concerns.
ASIC Chair Joe Longo hailed the ruling as a significant outcome, noting that it marked the regulator’s first penalty against a company for failing to issue a TMD. He also warned digital asset firms to closely consider their regulatory obligations moving forward. As part of the ruling, Bit Trade has been ordered to pay ASIC’s legal costs.
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