Australia fines Kraken operator $5M for regulatory breaches

Australia’s Federal Court has fined the Australian operator of the United States-based cryptocurrency exchange Kraken 8 million Australian dollars ($5.1 million) after siding with the country’s corporate regulator.

In a Dec. 12 judgment, Justice John Nicholas ordered Bit Trade, which operates Kraken Australia, to pay the fine within 60 days, along with covering court costs. The court found that Bit Trade failed to comply with design and distribution obligations and acted as a credit facility without a license.

The penalty is far less than the 20 million AU$ ($12.8 million) sought by the Australian Securities and Investments Commission (ASIC), which Justice Nicholas described as “excessive.” However, it exceeded Bit Trade’s request to limit the fine to 4 million AU$ ($2.5 million), which the judge said was “insufficient.”

“We appreciate the court recognized our compliance efforts, but are disappointed with the outcome of this case,” a Kraken spokesperson told Cointelegraph.

“We believe this case highlights the urgent need for bespoke crypto legislation to address the shortcomings that are causing confusion and uncertainty for Australian crypto investors and businesses,” Kraken added. “We believe these rulings significantly hamper growth in the Australian economy.”

Justice Nicholas had sided with ASIC in its September 2023 suit against Bit Trade, finding it had offered a “margin extension” product that allowed users to trade crypto or fiat with leverage without the legally required target market determination (TMD).

“Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them,” ASIC Chair Joe Longo said in a Dec. 12 statement.

Longo added that over 1,100 Australians used the product and were charged over $7 million in fees and interest and lost over $5 million, “including one investor who lost almost US$4 million.”

“This is a significant outcome,” Longo said. “It is ASIC’s first penalty against an entity for failing to have a TMD and a reminder for digital assets firms to consider their regulatory compliance obligations.”

In his order, Nicholas said he was “satisfied that Bit Trade’s contraventions were serious and motivated by a desire to maximize revenue.”

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He said the margin extension was offered “without any consideration” of local corporate law “until after ASIC intervened.”  

After Bit Trade became aware that ASIC required a TMD for the product, it was on the exchange “to make a TMD or to limit offerings of the Product to non-retail clients,” Nicholas said.

“Instead, it continued to offer the Product to retail clients,” he added.

In his statement, Longo said the regulator believes “many products” offered by crypto companies “are captured by the current law.”

“Those products need to be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections,” he added.

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