Australia fines Kraken’s operator $5m for unlawful credit facility

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As a seasoned crypto investor with a keen eye for regulatory compliance and a knack for navigating the complexities of the digital asset market, I find the recent AUD 8 million fine imposed on Kraken’s Australian entity, Bit Trade, a stark reminder of the importance of adhering to local laws and regulations.

Kraken’s Australian subsidiary, Bit Trade, could be penalized with millions due to non-compliance with regulations that demand a specific market identification for their margin extension service.

On December 12th, Bit Trade, the operator of the Kraken crypto exchange based in Australia, was penalized AUD 8 million (approximately $5.2 million) by the Australian Securities and Investments Commission. The penalty was issued due to Bit Trade’s violation of law by providing unauthorized credit facilities to over 1,100 customers, as stated in a press release on that day.

The Federal Court determined that the company did not comply with the Australian law mandating that financial products must be assigned a suitable customer demographic (target market) for sales.

Starting in October 2021, Bit Trade introduced a margin extension service that allowed for extensions and repayments in either digital assets like Bitcoin (BTC) or fiat currencies such as the U.S. dollar. Yet, this product was advertised without the necessary determination of its target market, an essential regulatory document designed to ensure financial products are offered only to appropriate customers.

In each instance that Bit Trade’s product was released without first determining its intended market, the court determined that the product violated both design and distribution obligation standards. The company allegedly overcharged customers in fees and interest totaling more than $7 million, and trading losses for customers exceeded $5 million, according to the regulatory body.

It’s said that an investor suffered a substantial loss of around $4 million through the use of the margin extension service. In his verdict, Judge Nicholas characterized Bit Trade’s actions as significant and driven by the intent to boost earnings, stating further that the company disregarded compliance requirements until they were brought to ASIC’s attention.

Regarding the decision, Joe Longo, ASIC’s Chair, described it as a “notable achievement.” He further explained that this penalty against Bit Trade for not having a Terms of Market Determination (TMD) serves as a warning to digital asset companies about their regulatory compliance responsibilities. Alongside the fine, Bit Trade was instructed to cover ASIC’s legal expenses.

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2024-12-12 10:18