Australian regulator wins case against crypto exchange operator Kraken over sales deficiencies

(Reuters) – Australia's Federal Court ruled on Friday that crypto exchange operator Kraken had failed to meet design and distribution obligations for its margin trading product, Australia's corporate regulator said.

Bit Trade Pty is the operator of the Kraken crypto exchange in Australia, one of the world's largest cryptocurrency exchanges.

In September 2023, the Australian Securities and Investments Commission (ASIC) initiated civil proceedings against Bit Trade, alleging that Bit Trade, a subsidiary of US Payward Incorporated, had failed to conduct a target market determination for the product before offering it to customers, despite concerns being communicated to it.

“Today’s outcome is a stark reminder to the crypto industry of the importance of adhering to design and distribution commitments,” ASIC Vice Chair Sarah Court said in a statement.

In ASIC's case, it was alleged that the obligation to repay a digital asset or local currency was a deferred debt and that the product was accordingly a credit facility.

“It is a legal requirement that financial products are appropriately distributed to consumers,” Court added.

“Overall, we are disappointed with today's decision, but we are ready and willing to comply with the court's decision,” a Kraken spokesperson said of the ruling.

In November 2023, the U.S. Securities and Exchange Commission (SEC) sued Kraken for illegally operating a securities exchange without prior registration with the regulator.

ASIC and Bit Trade have seven days to agree on declarations and cease and desist orders. At a later date, ASIC will seek financial penalties against the operator.

(Reporting by Sherin Sunny in Bengaluru; Editing by Rashmi Aich)