Australia's corporate regulator said on Thursday it had initiated civil proceedings against Bit Trade Pty Ltd, provider of the Kraken crypto exchange to Australian customers, for failing to comply with design and distribution obligations for its margin trading product.
The design and distribution obligations (DDO) require firms to design financial products that meet the needs of consumers and distribute them in a targeted manner.
The Australian Securities and Investments Commission (ASIC) alleged that Bit Trade failed to make a target market determination for the product before offering it to customers, and continues to offer it despite being notified of the ASIC's concerns in June last year.
Bit Trade's margin trading product is a credit facility as it provides customers credit to buy and sell certain crypto assets on the Kraken exchange, ASIC said.
The regulator noted that customers can receive an extension of credit of up to five times the value of the assets they use as collateral. It said at least 1,160 customers had used the margin trading product, incurring a total loss of about A$12.95 million ($8.35 million) since DDO began in October 2021.
ASIC is seeking declarations, pecuniary penalty and injunctions prohibiting Bit Trade's ongoing conduct.
"These proceedings should send a message to the crypto industry that products will continue to be scrutinised by ASIC to ensure they comply with regulatory obligations in order to protect consumers," ASIC Deputy Chair Sarah Court said.
($1 = 1.5516 Australian dollars)
(Reporting by Himanshi Akhand in Bengaluru; Editing by Pooja Desai)