The Australian Securities and Investments Commission (ASIC) has commenced civil proceedings against Bit Trade, the provider of the Kraken crypto exchange in Australia, for failing to comply with design and distribution obligations for one of its trading products.

According to a Sept. 21 statement from ASIC, the Australian financial regulator alleged that Bit Trade failed to make a target market determination before offering its margin trading product to Australian customers.

Design and distribution obligations are legal requirements for firms that offer financial products in Australia. The obligations set forth specific requirements for firms to design financial products that meet pre-determined needs of customers and then distribute them through a targeted plan.

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 https://t.co/MCRYqah0dP pic.twitter.com/zURQ2xDw7M

— ASIC Media (@asicmedia) September 20, 2023

The regulator claimed that since the introduction of design and distribution obligations in October 2021, at least 1,160 Australian customers had used Bit Trade’s margin trading product and had incurred a total loss of approximately $8.35 million (12.95 million Australian dollars).

ASIC said that it had notified Bit Trade of its failure to comply with the obligations in June 2022; however, it alleges that Bit Trade continued to offer the product without ever making the relevant determinations.

Jonathon Miller, managing director of Kraken’s Australian operations, told Cointelegraph that ASIC’s move came as a surprise, as he believed the product was compliant with the local obligations.

“We have been attempting to constructively engage with ASIC on this matter for some time to ensure our product offering, as an AUSTRAC-registered Digital Currency Exchange, remains compliant,” said Miller.

“We are therefore both surprised and disappointed to have received today’s enforcement action. We believe this product is offered in compliance with Australian law and will continue our efforts to receive clarity on this matter.”

Bit Trade’s margin trading product is a “margin extension” service that allows customers to receive an extension of credit up to five times the value of the assets they use as collateral.

The financial regulator claimed that this product is in fact a “credit facility,” as it offers customers “credit for use in the sale and purchase of certain crypto assets on the Kraken exchange.”

ASIC deputy chair Sarah Court said that the proceedings should serve as a reminder to the crypto industry that financial products will continue to be scrutinized by regulators to ensure they are compliant with the country’s consumer protection laws.

“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.”

Updated Sept. 21, 4:07am UTC : This article has been updated to include comment from Kraken for Australia managing director Jonathon Miller. 

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