The Federal Court of Australia has imposed an $8 million fine on Bit Trade, the operator of the cryptocurrency exchange Kraken in the country, for offering an unapproved margin lending product to local customers.

The penalty follows allegations by the Australian Securities and Investments Commission (ASIC) that the firm violated financial regulations by failing to assess customer suitability for the product.

Legal Implications

The credit facility, which enabled users to leverage borrowed funds as investments backed by digital assets like Bitcoin or national currencies as collateral, was issued without a Target Market Determination (TMD).

A TMD ensures that financial offerings are appropriately targeted to consumers based on their needs and circumstances. ASIC argued that Bit Trade offered the product to more than 1,100 Australian clients without this document in place.

Between October 2021 and August 2023, 1,163 customers paid over $12 million in fees and interest for the product, with the total number of users likely higher as it remained available until August 2024.

Justice John Nicholas, who delivered the penalty decision, emphasized the severity of Bit Trade’s rule-breaking, stating they were “serious and motivated by a desire to maximize revenue.” He criticized the company for not addressing compliance issues until the regulator raised concerns, calling its system “seriously deficient.”

The financial watchdog reported that people lost a combined $7.85 million due to the product, with one investor losing nearly $6.3 million. On top of the fine, Bit Trade was ordered to cover ASIC’s legal costs.

Regulatory Implications and Industry Reactions

ASIC Chair Joe Longo described the ruling as a pivotal decision that shows the importance of TMDs in protecting consumers from harmful