Key points
- Bit Trade failed to meet its obligations to design and distribute its margin trading product.
- ASIC plans to seek financial sanctions against Australian operator Kraken.
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Australian Kraken exchange operator Bit Trade Pty has lost a case in the Federal Court of Australia over its margin trading product. According to Reuters reportedThe court ruled that Bit Trade failed to comply with design and distribution obligations, according to Australia’s corporate regulator.
The Australian Securities and Investments Commission (ASIC) launched civil proceedings against Bit Trade in September 2023, alleging that the company failed to determine the target market before offering the product to customers.
“Today’s outcome sends a clear reminder to the cryptocurrency industry about the importance of complying with design and distribution obligations,” said ASIC vice-chair Sarah Court, adding: “It is a legal requirement that financial products are distributed to consumers in an appropriate manner.”
The ASIC case argued that the obligation to repay a digital asset or national currency was a deferred debt, making the product a line of credit.
“Overall, we are disappointed by today’s ruling, but we are prepared and willing to comply with the court’s decision,” a Kraken spokesperson responded to the ruling.
ASIC and Bit Trade have seven days to agree on declarations and injunctions. The regulator plans to seek financial penalties against the operator at a later date.
This legal setback for Kraken in Australia follows a November 2023 lawsuit filed by the U.S. Securities and Exchange Commission, which accused Kraken of operating a cryptocurrency trading platform without proper registration.
In the case of Kraken discussed that the regulator is attempting to broaden its regulatory reach by using vague terms such as “investment concept” and “ecosystem” as substitutes for well-defined legal terms such as “investment contract” and “enterprise.”
Notably, the exchange even noted that the SEC’s approach could result in a significant reordering of the US financial regulatory structure, transforming the sale of any digital asset or commodity into an investment contract at the agency’s discretion.
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