Australian Regulator Sues Crypto Exchange for Design and Distribution Failures
The Australian Securities and Investment Commission (ASIC) has filed a lawsuit against Bit Trade Pty Ltd, the provider of Kraken to the Australian market. The regulator alleges that the company failed to comply with design and distribution obligations for its margin trading product.
Failure to Comply with DDOs
According to reports by Reuters, ASIC has initiated civil proceedings against Bit Trade, accusing it of failing to comply with design and distribution obligations for the margin trading product offered to Australian customers on the Kraken exchange. Design and distribution obligations require firms to design their financial products to meet consumer needs and distribute them in a targeted manner.
“We are suing Bit Trade, provider of the Kraken crypto exchange in Australia, for allegedly failing to comply with the design and distribution obligations (DDO) for its margin trading product. Since October 2021, customers have lost about $12.95 million.”
– ASIC Media (@asicmedia) September 20, 2023
ASIC’s case centers around Bit Trade’s failure to make a target market determination for the product before offering it to Australian customers. The regulator argues that Bit Trade’s margin trading product is a credit facility, while Bit Trade claims it is a margin extension.
Customers Can Receive x5 Credit Extension
The ASIC states that Bit Trade’s customers can receive a credit extension of up to five times the value of their collateral. The regulator also reveals that at least 1,160 customers have used Bit Trade’s margin trading product since October 2021, resulting in a total loss of $8.35 million.
Sarah Court, ASIC Deputy Chair, emphasizes the importance of complying with design and distribution obligations to protect consumers. She states, “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.”
The ASIC had previously notified Bit Trade of its failure to comply with DDO in June 2022, but the platform continues to offer the product to Australian customers without a target market determination. The ASIC seeks declarations, a monetary penalty, and injunctions halting Bit Trade’s alleged ongoing contraventions.
Hot Take: ASIC Takes Legal Action Against Bit Trade for Design and Distribution Failures
The Australian Securities and Investment Commission (ASIC) has sued Bit Trade Pty Ltd, the provider of Kraken in Australia, for allegedly failing to comply with design and distribution obligations (DDO) for its margin trading product. ASIC alleges that Bit Trade did not make a target market determination before offering the product to Australian customers. The regulator claims that at least 1,160 customers have suffered losses totaling $8.35 million since October 2021 due to Bit Trade’s non-compliance. This legal action serves as a warning to the crypto industry that ASIC will scrutinize products to protect consumers and ensure regulatory compliance.
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