Australia’s corporate regulator said on Thursday it had initiated civil proceedings against Bit Trade Pty Ltd, provider of the Kraken crypto exchange to Australian customers, for failing to comply with design distribution obligations for its margin trading product. The design and distribution obligations (DDO) require firms to design financial products that meet the needs of consumers and distribute them in a targeted manner. ASIC said it first notified Bit Trade of the issue in June 2022, but it has continued to offer the product without making the required evaluations.
ASIC’s deputy chair, Sarah Court, described the proceeding as “a significant action that should send a clear message to the crypto industry” that products will continue to be scrutinized to ensure they comply with regulations designed to protect consumers. The DDO was introduced in October 2021, and it requires that providers of a financial product establish a public document called a target market determination that identifies who the product is appropriate for.
The DDO also requires that businesses identify any risks associated with the product, such as its speculative nature and lack of liquidity, and provide customers with an investment statement that includes the price and risk profile of the offering. ASIC has taken action against several groups in the past for allegedly not adhering to the requirements of the new laws, including some that had a target market determination that was too broad for some ultra-high-risk products.
According to ASIC’s press release, Bit Trade’s margin trading product is a credit facility that gives customers credit to use for the sale and purchase of crypto assets on its Kraken platform, with customers allowed to receive an extension of up to five times the value of the assets they use as collateral. It is also alleged that the company failed to correctly identify its target market for the margin trading product, which would have been required under the DDO, and also that it failed to notify customers about the risks of the product.
ASIC is seeking declarations, financial penalties, and injunctions to prevent the ongoing alleged contravening conduct from continuing. The court still needs to set a date for the initial case management hearing.
