ASIC wins case against crypto exchange operator Bit Trade
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The news: The corporate regulator has won its case against Bit Trade, the operator of crypto exchange Kraken, after the Federal Court ruled that Bit Trade failed to comply with design and distribution obligations when offering a margin trading product to Australian customers.
The numbers: The Australian Securities and Investments Commission (ASIC) alleged that more than 1,000 Australian customers lost nearly $13 million using Bit Trade’s margin extension.
The context: ASIC announced its lawsuit last September, accusing Kraken operator Bit Trade of failing to make a “target market determination” that outlined the appropriate customers for its margin trading product. The product allows customers to trade certain crypto assets with up to five times leverage. The regulator alleged that Bit Trade’s “margin extension” was a credit facility.
Justice John Nicholas found that the obligation to repay a digital asset was not an obligation to repay money and therefore was not a deferred debt.
Nicholas agreed with ASIC that a margin extension in a national currency created a deferred debt, meaning the product was a credit facility.
ASIC and Bit Trade have seven days to agree on declarations and injunctions. The corporate regulator has said it would seek financial penalties against Bit Trade.
The case was expected to set a precedent for how margin lending facilities fit within Australia's credit and financial product regulation when linked to crypto products.
What they said: ASIC deputy chair Sarah Court said: "This is a significant outcome for ASIC involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinise products to ensure they comply with regulatory obligations in order to protect consumers."
"Today’s outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations. It is a legal requirement for financial products to be distributed to consumers appropriately," she said.
"Consumers should receive the full protection of the law when dealing in crypto-asset products and we will continue to take action to ensure this happens."
In a statement Kraken said: “Today’s ruling is another reminder of how cryptoassets are a novel technology. We’re pleased the judge understood the nuances in this case, and recognised the challenges in applying existing regulatory frameworks to innovative technologies".
"Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision," it said.
The sources: Kraken, ASIC media release
