An Australian court has ruled in favor of the country’s securities regulator against Bit Trade, the local operator of the Kraken crypto exchange, regarding design and distribution obligations for a margin trading product.
In 2021, Bit Trade began offering a “margin extension” product without determining a target market as mandated by law, according to the Australian Securities and Investments Commission (ASIC). This product allowed for margin extensions to be repaid in either digital assets like Bitcoin or national currencies. ASIC argued that the obligation to repay in digital assets constituted a deferred debt, thereby categorizing the product as a credit facility.
In Federal Court, the judge concluded that the obligation to repay a digital asset did not equate to repaying money and, thus, was not classified as a deferred debt. However, the judge concurred with ASIC that a margin extension denominated in national currency did create a deferred debt, establishing it as a credit facility.
ASIC Deputy Chair Sarah Court stated, “Today’s outcome serves as an important reminder to the crypto industry about the necessity of compliance with design and distribution obligations. It is legally required for financial products to be distributed appropriately, ensuring consumers receive full legal protection when engaging in crypto-asset transactions. We will continue to take action to uphold these standards.”
A spokesperson for Kraken expressed disappointment with the ruling but indicated readiness to comply with the court’s decision. ASIC and Bit Trade now have seven days to finalize declarations and injunctions, with ASIC planning to pursue financial penalties.