One of the world’s largest cryptocurrency exchanges Kraken broke Australian law when it allowed more than 1000 consumers to borrow money towards risky cryptocurrency investments, the Federal Court has ruled.
Australia’s corporate watchdog ASIC alleged 1160 Australian consumers burnt $12.95 million on Kraken’s margin products, that allowed users to borrow up to five times the amount of collateral they put in for cryptocurrency investments.
ASIC deputy chairwoman Sarah Court and ASIC chairman Joe Longo.Credit: Penny Stephens
ASIC alleged the exchange’s local arm, registered under the name Bit Trade, did not comply with laws introduced in October 2021 that required sellers of financial products to be more careful about assessing the appropriateness of their products for particular consumers.
The Federal Court agreed, with Justice John Nicholas ruling in ASIC’s favour today.
Nicholas agreed with the watchdog that Bit Trade’s “margin extension” product was effectively a credit facility, and that the company contravened the Corporations Act each time it made the product available to a consumer.
“This is a significant outcome for ASIC involving a major global crypto firm,” ASIC deputy chair Sarah Court said.
“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. 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.”
ASIC and Bit Trade have been given seven days to agree on declarations and injunctions, and an ASIC spokeswoman said the regulator will seek financial penalties against Bit Trade on a date to be set. A Kraken spokesman said the company was disappointed by the ruling.
“Today’s ruling is another reminder of how crypto assets 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,” the spokesman said.
“Overall, we’re disappointed by today’s ruling, but we’re prepared and willing to comply with the court’s decision.”