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23/08/24
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Australia’s Court Backs ASIC in Bit Trade’s Compliance Deficiencies
Australia’s federal court has ruled decisively in favor of the Australian Securities and Investments Commission (ASIC) in its legal action against Bit Trade, the operator of Kraken’s cryptocurrency exchange in Australia. The court determined that Bit Trade had not adhered to essential design and distribution obligations, and was functioning as an unauthorized credit facility.
The legal proceedings, initiated by ASIC in September 2023, stemmed from allegations that Bit Trade had launched a margin trading product without a proper target market determination. This determination is critical to ensuring that financial products are designed and marketed to meet the specific needs of a predefined customer base. Justice John Nicholas found that Bit Trade’s actions breached the legal requirements by issuing its trading product to retail clients without establishing a target market in advance.
In addition to the compliance failures, ASIC raised concerns about Bit Trade’s margin trading product allowing customers to borrow up to five times the value of their collateral. The court noted that this arrangement constituted the operation of a credit facility, which requires appropriate licensing under Australian law. Justice Nicholas highlighted that the provision of credit through margin extensions created debts payable upon changes in customer eligibility, thus confirming the credit facility classification.
With the court ruling in place, ASIC and Bit Trade now have one week to reach an agreement on the necessary declarations and injunctions. ASIC has indicated its intent to pursue financial penalties against Bit Trade for these violations.
In response to the ruling, a spokesperson for Kraken expressed disappointment but emphasized the company’s commitment to comply with the court’s decision. The spokesperson reflected on the broader implications for the cryptocurrency sector, acknowledging the complexities of aligning innovative technologies with existing regulatory frameworks. Kraken, which acquired Bit Trade in 2020, remains focused on adhering to legal obligations in the Australian market.
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