The Australian Securities Regulator has prevailed in its lawsuit against Kraken’s local operator
The Judge determined that Bit Trade Pty Ltd. failed to conduct a target market analysis for its financial product prior to distributing it to retail clients.
On Friday, the Federal Court of Australia decided that Bit Trade Pty Ltd, the operator of Kraken’s Australian operations, had “contravened” a provision of the nation’s Corporations Act. The Australian Securities and Investments Commission (ASIC) initiated the lawsuit against Bit Trade.
Prior to offering a financial product to consumers, an issuer is required to conduct a “target market determination” under Section 994B of the Corporations Act.
Justice Nicholas established that “Bit Trade violated s 994B(1) of the Corporations Act when read in conjunction with s 994B(2)” by distributing the Product to retail clients without first conducting a target market analysis.
ASIC stated that Bit Trade’s “margin extension” product has been accessible to customers transacting on the Kraken exchange since October 5, 2021, without the necessity of a target market determination, as mandated by law.
In addition, ASIC’s announcement stated that the Judge “found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt.” However, the Judge concurred with ASIC that “a margin extension in a national currency created a deferred debt, which meant that the product was a credit facility.”.
“We are prepared and willing to comply with the court’s decision, despite our disappointment with today’s ruling,” stated a Kraken spokesperson in an email. “We are delighted that the judge recognized the difficulties associated with implementing extant regulatory frameworks on innovative technologies and comprehended the complexity of this case.”
Kraken’s legal spokesperson cited the judgment as an illustration of the “ambiguity of the law in Australia with respect to crypto offerings.” The court determined that Kraken’s Margin offering was subject to a set of regulations known as the Design and Distribution Obligations when it extended fiat currency to clients, but not when it extended cryptocurrency to their clients.
“This situation is unsatisfactory for investors in Australia. Despite our preference for legislative reform over test cases, we are pleased to have received clarification from the Court regarding our Margin offering. We will promptly take the necessary steps to ensure compliance and continue to provide our consumers with our services.”
ASIC notified Bit Trade that it would “seek pecuniary penalties” and that the two parties have been given seven days to reach an agreement on declarations and injunctions.
Sarah Court, the Deputy Chair of ASIC, stated, “This is a significant outcome for ASIC in relation to a prominent global crypto firm. We commenced proceedings to convey to the crypto industry that we will persist in our efforts to review products to guarantee that they adhere to regulatory requirements, thereby safeguarding consumers.”
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