Cryptocurrency exchange Kraken taken to court by ASIC

A product offered by cryptocurrency exchange Kraken which allows users to leverage up to five times their collateral is at the centre of an ASIC lawsuit against the platform.

Bitcoin and other cryptocurrencies can be traded on the Kraken exchange.

A product offered by cryptocurrency exchange Kraken which allows users to leverage up to five times their collateral is at the centre of an Australian Securities and Investments Commission lawsuit against the platform.

The corporate regulator has started civil proceedings in the federal court against Bit Trade, which provides the Kraken exchange in Australia. US-based Kraken acquired Bit Trade in early 2020.

ASIC is alleging that Bit Trade failed to comply with the legal obligations for the margin trading product it offers Australian customers on the Kraken exchange, which allows users to “receive an extension of credit of up to five times the value of the assets they use as collateral’’.

“ASIC alleges that Bit Trade’s margin trading product is a credit facility as it offers customers credit for use in the sale and purchase of certain crypto assets on the Kraken exchange,’’ ASIC said on Thursday.

“Bit Trade describes this as ‘margin extension’.

“ASIC’s case focuses on Bit Trade’s failure to make a target market determination for the product before offering it to Australian customers, as required by law.’’

ASIC deputy chair Sarah Court said the court action should send a message to cryptocurrency operators that the regulator will continue to scrutinise their product offerings.

“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,’’ Ms Court said.

“ASIC alleges that since the commencement of the design and distribution obligations on October 5, 2021, at least 1160 Australian customers have used the margin trading product incurring a total loss of approximately $12.95m,’’ the regulator said.

“ASIC notified Bit Trade of its concerns regarding the failure to comply with the design and distribution obligations in June 2022. Bit Trade continues to offer the product to Australian customers without a target market determination.’’

ASIC is seeking declarations, pecuniary penalties and injunctions prohibiting the ongoing alleged contravening conduct.

A date for the first case management hearing is yet to be set.

Kraken could not be contacted.