Kraken Faces Legal Setback in Australia

Australia’s corporate watchdog, ASIC, has secured a victory in its legal battle against Bit Trade Pty Ltd. The operator of Kraken’s crypto exchange in Australia. The Federal Court’s decision underscores the increasing scrutiny on cryptocurrency platforms regarding regulatory compliance.

Legal Proceedings and Findings

On a late Thursday, the Federal Court found that Bit Trade had not adhered to the necessary legal requirements in the design and distribution of its “margin extension” product. This product, aimed at Kraken’s Australian clientele since October 2021, violated the Corporations Act by lacking a target market determination (TMD). A TMD is crucial for defining the suitable market for a financial product and the conditions under which it should be sold.

The Court’s Decision and Implications

Justice Nicholas highlighted that the obligation to repay digital assets under the margin trading scheme did not constitute a deferred debt. However, the need to repay in national currencies, like the U.S. dollar, classified the service as a credit facility under Australian law. This classification aligns with the Australian Securities and Investments Commission’s (ASIC) stance and marks a significant win for the regulator.

ASIC Deputy Chair Sarah Court emphasized the ruling’s importance, stating, “This is a significant outcome for ASIC involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinise products to ensure they comply with regulatory obligations in order to protect consumers.”

Industry Response and Future Steps

Despite the setback, Kraken expressed its commitment to comply with the court’s decision. A spokesperson from Kraken conveyed disappointment. But acknowledged the court’s recognition of the complexities in regulating new technologies like cryptocurrencies. “Today’s ruling is another reminder of how crypto assets are a novel technology. We’re pleased the judge understood the nuances in this case. And recognized the challenges in applying existing regulatory frameworks to innovative technologies.”

Both Bit Trade and ASIC have a week to negotiate the terms for declarations and injunctions, with potential financial penalties to be determined later.

The ruling against Bit Trade marks a pivotal moment in the crypto industry’s interaction with traditional regulatory frameworks. As digital assets continue to evolve, this case may serve as a benchmark for how regulators and crypto enterprises navigate compliance and consumer protection.