The Federal Court today ruled Bit Trade Pty Ltd, the operator of the Kraken crypto exchange in Australia, failed to comply with design and distribution obligations when offering a margin trading product to Australian customers.
Since 5 October 2021, Bit Trade鈥檚 鈥渕argin extension鈥� product has been available to customers trading on the Kraken exchange without a target market determination, as required by law. As a result, Bit Trade contravened s994B(2) of the Corporations Act each time it made the product available to a customer.
ASIC Deputy Chair Sarah Court said, 鈥楾his is a significant outcome for 魅影直播 involving a major global crypto firm. We initiated proceedings to send a message to the crypto industry that we will continue to scrutinise products to ensure they comply with regulatory obligations in order to protect consumers.
鈥楾oday鈥檚 outcome sends a salient reminder to the crypto industry about the importance of compliance with the design and distribution obligations. It is a legal requirement for financial products to be distributed to consumers appropriately. Consumers should receive the full protection of the law when dealing in crypto-asset products and we will continue to take action to ensure this happens.鈥�
The product provided for margin extensions to be made and repaid in either digital assets (e.g. Bitcoin) or national currencies (e.g. US dollars). 魅影直播鈥檚 case alleged that the obligation to repay a digital asset or national currency was a deferred debt and accordingly, that the product was a credit facility.
In handing down his judgment Justice Nicholas found the obligation to repay a digital asset was not an obligation to repay money and was therefore not a deferred debt.
However, his Honour agreed with 魅影直播 that a margin extension in a national currency created a deferred debt which meant that the product was a credit facility.
ASIC and Bit Trade have been given seven days to agree on declarations and injunctions.听 魅影直播 will seek financial penalties against Bit Trade on a date to be set.
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Background
Bit Trade is registered with AUSTRAC. It is a subsidiary of Payward Incorporated. Bit Trade is the local operator of the Kraken crypto currency exchange.
Entities providing crypto-related products should be aware that many such products are financial products.鈥扔爸辈� Information Sheet 225:鈥�Crypto Assets (INFO 225)鈥痯rovides guidance on the circumstances in which a crypto-related offering may be a financial product.
The design and distribution obligations (DDO) require firms to design financial products that meet the needs of consumers, and to distribute those products in a targeted manner. A target market determination is an important requirement under DDO. It is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for (target market) and matters relevant to the product鈥檚 distribution and review.
ASIC鈥檚 Moneysmart website has information for consumers about the risks of investing in鈥�.
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Editor's Note:
On 14 November 2024, a hearing on penalty took place before Justice Nicholas who has reserved judgment.