Australian Court Fines Kraken $8 Million for Operating Unlawful Credit Facility

• Global crypto exchange Kraken has been fined AU $8 million by Australian regulators.
• The fines are related to Kraken’s margin extension product, offered without the required Target Market Determination (TMD).
• ASIC’s allegations include significant financial losses for Kraken’s customers and serious regulatory breaches.
• Despite the ruling, Australian regulators are focusing on updating financial regulations to support the digital asset sector.

Global crypto exchange Kraken is in trouble with Australian regulators – to the tune of AU $8m. 

Kraken’s history in Australia stretches back to 2013 via Bit Trade, which was acquired by and rebranded to Kraken in 2020. However, the problems for the crypto exchange arose in October 2021, when the platform began offering a “margin extension” product.

Now, the company has been ordered to pay millions of dollars by the Australian Federal Court.

Related: New AUSTRAC Task Force to Combat Crypto ATM Use in Money Laundering

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ASIC Alleges Kraken Breached Margin Extension Policies

The proceedings began last year when Australia’s regulatory watchdog, the Australian Securities and Investment Commission (ASIC) alleged that Kraken breached margin extension policies.

Specifically, Kraken offered customers the ability to borrow funds repayable in digital assets or fiat currencies, while leveraging their positions. Essentially, it allows investors to magnify their gains – and also their losses – by borrowing money.

However, in Australia, this service is illegal without performing a target market determination (TMD). 

ASIC’s Chair, Joe Longo, spoke to the importance of TMDs when offering margin trading or similar products.

Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them…Bit Trade issued its margin extension product to over 1100 Australians who were charged fees and interest of more than US $7m without considering if the product was appropriate for them.

ASIC Chair Joe Longo

Kraken Fined for Unlawful Margin Extensions Amid Regulatory Scrutiny

The Federal Court was satisfied that Kraken breached several regulations when offering its customers margin extensions without appropriate TMDs in place.

[Bit Trade] did not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ASIC…Bit Trade’s contraventions were serious and motivated by a desire to maximise revenue.

Justice Nicholas, Presiding Judge

According to ASIC, customers participating in Kraken’s margin extension program lost more than US $5m (AU $7.85m).

Representatives from Kraken weren’t too pleased with the court case’s outcome.

We believe these rulings significantly hamper growth in the Australian economy. We look forward to engaging constructively with policymakers and regulators as these rules are developed.

Kraken spokesperson

Despite the ruling, Australian regulators are turning their attention to updating financial regulations to better support the growing digital asset sector.