The Australian Securities and Investments Commission (ASIC) has initiated civil proceedings against Bit Trade Pty Ltd., the provider of the Kraken crypto exchange to Australian customers, for violating the requirements for the design and distribution obligations for its margin trading product.
As per the statement from ASIC, the Australian financial regulator alleged that Bit Trade failed to comply with the design and distribution obligations (DDOs) for the margin trading product it provides Australian customers on the Kraken exchange.
The design and distribution obligations (DDO) mandate that businesses create financial products that cater to consumer needs and distribute them in a targeted way. The case brought by ASIC centers primarily on Bit Trade’s violation of the law by failing to identify the product’s target market prior to making an offer to Australian customers.
ASIC claims that Bit Trade’s margin trading product is a ‘margin extension’ that gives customers credit to use for the sale and purchase of specific crypto assets on the Kraken exchange. Customers may be granted a credit line up to five times the value of the collateralized assets.
It said that since DDO began in October 2021, at least 1,160 customers had used the margin trading product, resulting in a total loss of about A$12.95 million ($8.35 million). ASIC also notified Bit Trade of its failure to comply with the obligations in June 2022, despite the fact that it allegedly continued to offer the product without ever making the necessary determinations.
“These proceedings should send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers,” said ASIC Deputy Chair Sarah Court.
ASIC is asking for injunctions preventing the continuation of the alleged contravening conduct, declaratory relief, and a monetary fine. The Court has not yet set a date for the initial case management hearing.