The Australian Securities & Investments Commission (ASIC) has initiated legal action against Bit Trade, an Australian crypto exchange that offers services through the US-based Kraken platform, due to alleged non-compliance with financial regulations. ASIC oversees financial services and consumer credit in Australia and has accused Bit Trade of failing to meet the design and distribution obligations for one of its trading products.

Design and distribution obligations are legal requirements that demand firms offering financial products to design them to meet customer needs and distribute them through a targeted plan. ASIC claims that Bit Trade, a subsidiary of Kraken’s parent company, Payward Incorporated, did not make a target market determination before offering its margin trading product to Australian customers.

The regulator alleges that since the introduction of these obligations in October 2021, at least 1160 Australian customers suffered total losses of approximately $12.95 million from Bit Trade’s margin trading product.

ASIC’s deputy chair, Sarah Court, emphasized that this legal action serves as a warning to the crypto industry, which is often seen as a regulatory “wild west” in the world of financial services. She stated that ASIC would continue to scrutinize crypto products to ensure compliance with regulatory obligations and protect consumers.

Bit Trade was reportedly notified of its failure to comply with these obligations in June 2022, but ASIC alleges that the company continued offering the product without making the necessary determinations.

However, Jonathon Miller, managing director of Kraken’s Australian operations, expressed surprise and disappointment regarding ASIC’s lawsuits, as he believed the product was compliant. He stated that Kraken had been attempting to engage constructively with ASIC on the matter to ensure compliance with Australian law and would continue efforts to seek clarity.

Bit Trade’s margin trading product, offered through Kraken, is described as a “margin extension” service that allows customers to receive credit up to five times the value of the assets they use as collateral. ASIC argues that this product functions as a “credit facility” because it provides customers with credit for trading certain crypto assets on the Kraken exchange.

Kraken positions itself as a platform where Australians can buy crypto with confidence and claims to be dedicated to advancing the cryptocurrency industry for all Australians.