Information Age Reports: Kraken Crypto Exchange Hit with $8 Million Fine by Australian Authorities

Expressing dissatisfaction, Kraken responds to the federal court’s fine imposition. Photo: Shutterstock

Kraken’s Australian service provider must pay an $8 million penalty, as decreed by a federal court. The fine results from a finding that the cryptocurrency exchange offered a credit service to over 1,100 clients without proper suitability checks.

These legal actions ensued after the Australian Securities and Investments Commission (ASIC), a financial regulatory body, launched proceedings against Bit Trade, which manages Kraken locally. The violation concerned non-adherence to regulations governing one of their trading offerings.

Reportedly, the criticized product led to customer losses exceeding $7.85 million (US$5 million), with one individual suffering a near $6.3 million (US$4 million) loss, ASIC revealed.

This fine represents the inaugural imposition related to a failure in producing a target market determination (TMD), a document that specifies the appropriate consumer profile for a product.

Bit Trade’s margin loan product was designed to allow investments using borrowed capital, with cryptocurrencies or fiat currencies serving as collateral.

Without conducting appropriate assessments, Bit Trade distributed this product to Australians, lacking a TMD, an act claimed by ASIC to be unsuitable.

In August, the federal court found Bit Trade repeatedly violated its design and distribution obligations (DDO) by offering this product without the requisite TMD.

From October 5, 2021, to August 11, 2023, it was discovered through court documents that 1,163 Australian users of this service incurred fees and interest totaling upwards of $12 million (US$7.7 million), with losses exceeding $8 million (US$5.3 million).

Justice John Nicholas of the federal court, in his decision rendered on the previous Thursday, opined that Bit Trade’s breaches were grave, driven by revenue maximization intent.

He criticized the company for disregarding the DDO demands until ASIC pointed them out, indicating a critical deficiency in their compliance system unrelated to the DDO’s complexities.

Beyond the $8 million penalty, the court also mandated Bit Trade to cover ASIC’s litigation expenses.

_{With an $8 million penalty and legal fees to ASIC, Bit Trade, which runs Kraken in Australia, faces financial repercussions. Photo: Kraken / Supplied}

‘An Influential Verdict’

Joe Longo, chairman of ASIC, deemed the ruling against Bit Trade a notable milestone and a validation of the critical role of TMDs in safeguarding against inappropriate product marketing to consumers.

He emphasized this case is the first such penalty over missing a TMD, serving as a caution to digital asset firms about their compliance responsibilities.

Discussing ongoing regulatory developments, a Kraken spokesperson expressed disappointment with the case’s outcome and stressed the urgency for tailored cryptocurrency laws to resolve the prevailing ambiguities unsettling Australian crypto investors and firms.

The spokesperson also commented on the potential growth hindrance within the Australian economy due to these court decisions and expressed eagerness to participate in the legislative process around these regulations.

In response to the ruling, and with a consultation process initiated in early December on potential digital asset guidance updates, Kraken issued a statement. The company posited that the current Australian legal framework is insufficient for the effective governance of cryptocurrency.

While supporting the proposed regulations in principle, the company conveyed its concerns about the delays in implementing these revisions.

Meanwhile, treasury and financial services opposition spokesperson, Luke Howarth, criticized the government for leaving the crypto industry in a state of uncertainty and accused ASIC of prematurely sculpting the regulatory environment ahead of a full-fledged legislative framework.