Australia Regulator Fines Kraken Operator $8M over Unauthorized Product Offerings

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As an analyst with over two decades of experience in the financial industry, this latest development between ASIC and Kraken’s Australian subsidiary, Bit Trade Pty Ltd, serves as yet another stark reminder of the importance of regulatory compliance in the rapidly evolving digital asset space.

Last Thursday, the Australian Securities and Investments Commission (ASIC) announced that it had penalized Bit Trade Pty Ltd, the manager of Kraken’s Australian crypto exchange, up to AUD 8 million for breaching national securities regulations.

Based on the statement, the fine was imposed on Bit Trade due to their illegal offering of a margin extension service to over a thousand Australian customers, without meeting the required regulatory standards.

Kraken’s Australian Subsidiary and Its Operations

In 2020, Bit Trade Pty Ltd, a subsidiary of Payward Incorporated, was appointed as the operator of Kraken’s Australian exchange following its acquisition by the centralized cryptocurrency exchange. This company, registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC), now operates under the name of Kraken and offers cryptocurrency services in Australia.

It was found that Bit Trade provided a ‘margin extension’ service to clients, which allowed them to lend and repay funds in cryptocurrencies (such as Bitcoin) or traditional currencies (like the U.S. dollar), without first obtaining the legally mandated target market determination (TMD). This raised regulatory concerns.

On Thursday, ASIC announced that they had discovered infractions during an investigation conducted in August by the Federal Court. The regulatory body uncovered instances where the company failed to adhere to their Design and Distribution Obligations (DDO) each time they provided the margin extension product without a valid Product Disclosure Document (TMD).

Bit Trade extended a margin product, which included charges and interest totaling over US$7 million, to over 1100 Australians, according to ASIC, without assessing if the product was suitable for each individual.

ASIC’s First Legal Action for TMD Non-Compliance

Additionally, it was revealed that the total losses suffered by customers surpassed $5 million, with a single investor experiencing losses amounting to approximately $4 million.

Beyond the $8 million penalty, Bit Trade was instructed to reimburse the Australian Securities and Investments Commission (ASIC) for their legal expenses related to the case.

In simpler terms, the Action by ASIC (the regulatory body) marked their initial move against a company that neglected to possess a Technology Maintenance Document (TMD). This situation underlines the importance for digital asset-related companies to emphasize compliance with legal requirements.

According to the regulator’s explanation, all cryptocurrency companies in Australia are legally required to reveal the intended customer base for every product they provide, as per the existing laws.

According to ASIC’s statement, numerous items provided by digital asset companies may already fall under existing laws. This implies that these products should be carefully developed and targeted towards suitable customers to guarantee that Australian consumers receive adequate safeguards.

Judge Nicholas emphasized that Bit Trade hadn’t fulfilled the necessary DDO requirements until the Australian Securities and Investments Commission (ASIC) pointed it out. He referred to this oversight as a clear indication of a “significantly inadequate compliance system.

As a researcher, I’m finding myself in alignment with the recent ruling by ASIC, which aligns perfectly with their ongoing consultations within the digital asset sector. In this context, ASIC is inviting feedback and insights from cryptocurrency providers and exchanges regarding potential revisions to their existing guidelines. These proposed changes aim to clarify when digital asset firm products fall under current regulatory jurisdiction.

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2024-12-12 15:16