Australia fines Kraken operator $5M for regulatory breaches

Australia’s Federal Court fined the Australian operator of United States-based cryptocurrency exchange Kraken 8 million Australian dollars ($5.1 million) after siding with the country’s corporate regulator.

In a Dec. 12 judgment, Justice John Nicholas ordered Bit Trade, which operates Kraken Australia, to pay the fine within 60 days and cover court costs. The court found that Bit Trade failed to comply with design and distribution obligations and acted as a credit facility without a license.

Breach of market rules

The penalty is less than the $12.8 million sought by the Australian Securities and Investments Commission (ASIC), which Nicholas described as “excessive.” Still, it exceeded Bit Trade’s request to limit the fine to $2.5 million, which the judge deemed “insufficient.”

“We appreciate the court recognized our compliance efforts, but are disappointed with the outcome of this case,” a Kraken spokesperson told Cointelegraph.

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“We believe this case highlights the urgent need for bespoke crypto legislation to address the shortcomings that are causing confusion and uncertainty for Australian crypto investors and businesses,” Kraken said. “We believe these rulings significantly hamper growth in the Australian economy.”

ASIC criticizes Kraken’s actions

Nicholas had sided with ASIC in its September 2023 suit against Bit Trade, finding it had offered a “margin extension” product that allowed users to trade crypto or fiat with leverage without the legally required target market determination (TMD).

“Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them,” ASIC Chair Joe Longo said in a Dec. 12 statement.

Source: ASIC

Longo added that over 1,100 Australians used the product, were charged over $7 million in fees and interest, and lost over $5 million, “including one investor who lost almost US$4 million.”

“This is a significant outcome,” Longo said. “It is ASIC’s first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.”

Crypto industry under scrutiny

In his order, Nicholas said he was “satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximize revenue.” 

He said the margin extension was offered “without any consideration” of local corporate law “until after ASIC intervened.”  

After Bit Trade became aware that ASIC required a TMD for the product, it was on the exchange “to make a TMD or to limit offerings of the Product to non-retail clients,” Nicholas said.

“Instead, it continued to offer the Product to retail clients,” he added.

In his statement, Longo said the regulator assumes “many products” offered by crypto companies “are captured by the current law.”

“Those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections,” he added.

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