The Australian Securities and Investments Commission (ASIC) has initiated legal action against Bit Trade Pty Ltd, a provider of crypto exchange services on Kraken, for alleged non-compliance with design and distribution obligations related to its margin trading product. ASIC has alleged that Bit Trade failed to create a target market determination for the product, which is a legal requirement in Australia.
The margin trading product offered by Bit Trade is considered a credit facility, as it extends credit to customers for the buying and selling of specific cryptocurrencies on the Kraken exchange. This credit extension, referred to as “margin extension,” allows customers to borrow up to five times the value of the assets they use as collateral.
ASIC has expressed concerns about Bit Trade’s non-compliance with design and distribution obligations since June 2022. Despite these concerns, Bit Trade continued to offer the product to Australian customers without a target market determination, resulting in regulatory action.
The legal proceedings initiated by ASIC send a message to the cryptocurrency industry that regulatory scrutiny will continue, and compliance with regulatory obligations is essential to protect consumers. ASIC is seeking declarations, pecuniary penalties, and injunctions to prevent further non-compliant conduct by Bit Trade.
Design and distribution obligations (DDO) mandate firms to design financial products that meet consumer needs and distribute them in a targeted manner. A target market determination is a critical component of DDO, specifying the class of consumers for which a financial product is suitable and providing distribution and review details.
By FCCT Editorial Team
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