What happened
The Federal Court has ordered Bit Trade Pty Ltd, the Australian operator of the Kraken crypto exchange, to pay $8 million following enforcement action by the Australian Securities and Investments Commission (ASIC).
ASIC took legal action against Bit Trade for unlawfully offering a margin extension product to more than 1,100 Australian customers without a required target market determination (TMD).
About the product
The margin extension product allowed customers to borrow using digital assets such as bitcoin, or national currencies such as US dollars. Customers were charged fees and interest totalling more than US$7 million. Trading losses suffered by customers totalled more than US$5 million, including one investor who lost almost US$4 million.
Significance of the penalty
ASIC has described this as its first penalty against any business for failing to have a TMD in place. ASIC has flagged the outcome as a warning to all digital asset firms that many crypto products fall under existing financial laws.
Draft guidance for the digital assets sector
Separately, ASIC released draft updated guidance for the digital assets sector on 4 December 2024. Industry participants have until 28 February 2025 to provide feedback. Details are available in ASIC media release 24-266MR at asic.gov.au.
Key actions
- Crypto exchange operators and businesses offering digital asset products in Australia are required to check whether their products qualify as regulated financial products under current law. ASIC's Information Sheet 225 (INFO 225) provides guidance at asic.gov.au.
- Businesses offering any product that could be classed as a credit facility or financial product are required to have a target market determination (TMD) in place before offering it to customers. The Federal Court's order confirms this is a mandatory legal requirement enforced with significant penalties.
- Digital asset industry participants are required to review ASIC's draft updated guidance released on 4 December 2024 and submit feedback before the 28 February 2025 deadline. See ASIC media release 24-266MR at asic.gov.au for details.
- Consumer information on digital asset risks is available on ASIC's Moneysmart website at moneysmart.gov.au.
This is a plain-English summary for information only, not legal or compliance advice. Always check the official source or consult a qualified professional.