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ASIC sues crypto exchange after customers lose $13m


The regulator alleges Bit Trade failed to comply with rules for a margin product and says the action should serve as a warning to the industry.

By Jon Bragg 9 minute read

ASIC is suing the provider of the Kraken crypto exchange in Australia, Bit Trade, in a move it says should serve as a warning for the digital currency industry.

The regulator alleged that the firm failed to comply with the design and distribution obligations (DDO) for the margin trading product being offered to Australians via the Kraken exchange.

The Federal Court civil suit focused on Bit Trade’s failure to make a target market determination (TMD) for the product before offering it to customers as required by law, ASIC said.

The product has been available in Australia via the Kraken exchange since January 2020.

Since the DDO regime began on 5 October 2021, ASIC alleged that at least 1,160 Australian customers have used the product, incurring a total loss of approximately $12.95 million.

“These proceedings should send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers,” commented ASIC deputy chair Sarah Court.

“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.”

According to the regulator’s allegations, the margin trading product is a credit facility for the sale and purchase of crypto assets on the Kraken exchange, which Bit Trade describes as “margin extension”.

ASIC said customers could receive an extension of credit up to five times the value of the assets they had as collateral.

Although ASIC raised concerns with Bit Trade about failing to comply with the DDO in June last year, the product is still being offered to Australian customers without a TMD.

The regulator now sought declarations, pecuniary penalty and injunctions prohibiting the ongoing alleged contravening conduct. The date for the first case management hearing has yet to be scheduled by the court.

In February, Financial Services Minister Stephen Jones announced that ASIC was increasing the size of its crypto team and upping its enforcement measures.

“The regulator will take legal action where it identifies crypto offerings being marketed without the appropriate credit or financial services licence,” Mr Jones said.

In May, ASIC deputy chair Karen Chester said that product issuers needed to “lift their game” after the regulator found that there was significant room for improvement in how issuers were meeting the DDO.



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