The Federal Court has ruled Bit Trade, operator of Kraken crypto exchange in Australia, failed to comply with Design and Distribution Obligation requirements when offering a margin trading product.
ASIC and Bit Trade have seven days to agree on declarations and injunctions with ASIC seeking financial penalties against Bit Trade at a later date.
Bit Trade’s ‘margin extension’ product has been trading on the Kraken exchange since 5 October 2021 without a Target Market Determination, which is required by law, therefore in breach of the Corporations Act.
The product allowed for margin extensions to be repaid in either digital assets or national currencies. ASIC alleged that the obligation to repay a digital asset or national currency was a deferred debt and so the product was a credit facility.
The court found that the obligation to repay a digital asset was not a deferred debt but that a margin extension in a currency was, meaning the product was a credit facility.
DDO requires firms to design financial products that meet the needs of consumers, and to distribute those products in a targeted manner.
A TMD is a mandatory public document that sets out the class of consumers a financial product is likely to be appropriate for and is a requirement of DDO.