Kraken operator loses case in Australia over margin trading product

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Australian exchange operator Kraken, Bit Trade Pty, has lost a case in the Federal Court of Australia over its margin trading product. As reported by Reuters, the court ruled that Bit Trade failed to comply with design and distribution obligations, according to Australia’s corporate regulator.

The Australian Securities and Investments Commission (ASIC) initiated civil proceedings against Bit Trade in September 2023, claiming the company failed to determine its target market before offering the product to customers.

“Today’s result sends an important reminder to the crypto industry about the importance of complying with design and distribution obligations.” She added: “It is a legal requirement that financial products are distributed to consumers appropriately,” ASIC deputy chairwoman Sarah Court said.

ASIC’s case held that the obligation to repay a digital asset or national currency was a deferred debt, making the product a credit facility.

“Overall, we are disappointed by today’s ruling, but we are ready and willing to abide by the court’s decision,” a Kraken spokesperson responded.

ASIC and Bit Trade were given seven days to agree the declarations and orders. The regulator intends to seek financial penalties against the operator at a later date.

This legal setback for Kraken in Australia follows a November 2023 lawsuit by the US Securities and Exchange Commission, which accused Kraken of operating a crypto trading platform without proper registration.

In this case, Kraken argued that the regulator is trying to broaden its scope by using vague terms such as “concept” and “investment ecosystem” as substitutes for well-defined legal terms such as “investment contract” and ” enterprise”.

Notably, the exchange even pointed out that the SEC’s approach could lead to a significant reordering of the US financial regulatory structure, turning the sale of any digital asset or commodity into an investment contract at the agency’s discretion.

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