Kraken ‘Surprised And Disappointed’ Over Australian Regulator’s Enforcement Action Against Its Service Provider

Kraken, the U.S.-based crypto exchange platform and one of the first to be listed on Bloomberg Terminal, expressed its disappointment after Australia’s top financial regulator sued Bit Trade, the exchange’s service provider in the country.

Jonathan Miller, Kraken’s managing director for Australia, said he was surprised by the Australian Securities and Investments Commission’s (ASIC) move as Bit Trade was complying with the regulations.

“We have been attempting to constructively engage with ASIC on this matter for some time to ensure our product offering, as an AUSTRAC-registered digital currency exchange, remains compliant,” Miller said. “We are therefore both surprised and disappointed to have received today’s enforcement action. We believe this product is offered in compliance with Australian law and will continue our efforts to receive clarity on this matter.”

ASIC sued Bit Trade, provider of the Kraken crypto exchange in Australia, Wednesday for “allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product.”

According to the regulator, Bit Trade failed to perform a target market determination before offering its margin trading product to customers.

“Since the commencement of the design and distribution obligations on 5 October 2021, at least 1160 Australian customers have used the margin trading product, incurring a total loss of approximately $12.95 million,” it said in a statement.

ASIC claimed that despite notifying Bit Trade, it failed to comply with its obligations in June 2022 and continued to offer its product.

“ASIC notified Bit Trade of its concerns regarding the failure to comply with the design and distribution obligations in June 2022. Bit Trade continues to offer the product to Australian customers without a target market determination,” the regulator alleged.

Bit Trade’s product, margin trading, is considered a “margin extension” service since it allows customers to receive an extension of credit up to five times the value of the assets used as collateral.

However, ASIC claimed it “is a credit facility as it offers customers credit for use in the sale and purchase of certain crypto assets on the Kraken exchange. Bit Trade describes this as a ‘margin extension’. Customers can receive an extension of credit of up to five times the value of the assets they use as collateral.”

“These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations in order to protect consumers. ASIC’s action should be a reminder of the importance of complying with the design and distribution obligations so that financial products are distributed to consumers appropriately,” ASIC deputy chair Sarah Court said in a statement.