The Australian Securities and Investment Commission (ASIC) has taken legal action against Bit Trade Pty Ltd for failing to comply with design and distribution obligations related to its margin trading product.
ASIC made this announcement on Thursday, September 21, 2023, revealing that Bit Trade, a subsidiary of Payward Incorporated and the provider of Kraken crypto exchange services in Australia, had caused losses of approximately $12.95 million for over 1,160 Australian customers who used the margin trading product.
We are suing Bit Trade, provider of the Kraken crypto exchange in Australia, for allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product. Since October 2021, customers have lost about $12.95 million https://t.co/MCRYqah0dP pic.twitter.com/zURQ2xDw7M
— ASIC Media (@asicmedia) September 20, 2023
In its statement, ASIC claimed that Bit Trade failed to define a target market for its product before offering it to Australian customers, as required by law.
The design and distribution obligations (DDO), which came into effect in October 2021, required firms to design financial products that meet the needs of consumers and distribute them in a targeted manner.
The regulator claimed that it notified Bit Trade of its concerns regarding DDO compliance in June 2022. Still, Bit Trade continued to offer the product to Australian customers without taking the necessary precautions.
ASIC’s deputy chair, Sarah Court, emphasized that this legal action will serve as a reminder to participants in the Australian crypto industry that financial products will be scrutinized to ensure compliance with consumer protection laws. In her words:
“ASIC’s action should be a reminder of the importance to comply with the design and distribution obligations so that financial products are distributed to consumers appropriately.”
However, Jonathon Miller, managing director of Kraken’s Australian operations, has expressed surprise and disappointment at ASIC’s enforcement action, believing the product was compliant with local regulations. Miller stated:
“We are, therefore both surprised and disappointed to have received today’s enforcement action. We believe this product is offered in compliance with Australian law and will continue our efforts to receive clarity on this matter.”
This action against Bit Trade and Kraken is the latest in a series of regulatory actions against crypto companies by the Australian financial watchdog. In August 2023, ASIC filed a lawsuit against cryptocurrency exchange eToro for alleged violations of design and distribution obligations. It also raided Binance’s Australian offices in July 2023 as part of an ongoing investigation into the firm’s operations, which had already led to the revocation of Binance’s operational license in the country.
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