Kraken is calling for clearer crypto regulations in Australia after a Federal Court ruled that part of its margin extension product violated local laws.

Cryptocurrency exchange Kraken is advocating for clearer crypto regulations in Australia after a Federal Court ruled that its fiat margin trading product violated local laws.

In a Sept. 8 blog statement, Kraken expressed disappointment with the judgment, saying Australian crypto investors and businesses “continue to operate in a confusing and uncertain regulatory environment.” The exchange also emphasized that the ruling highlights broader regulatory shortcomings in the country’s approach to crypto.

“This lack of clarity is a deeply unsatisfactory ongoing situation for the Australian crypto industry. […] This ruling makes it clearer than ever that bespoke crypto regulation is urgently needed.”

Kraken

In September 2023, the Australian Securities and Investments Commission launched civil proceedings against Bit Trade, a subsidiary of U.S. Payward Incorporated, for failing to conduct a target market determination for its product before offering it to customers.

In late August, Australia’s Federal Court ruled against Bit Trade for failing to comply with legal obligations when offering a margin trading product. ASIC’s Deputy Chair Sarah Court stated that the ruling aims to set a precedent for enforcing crypto compliance in Australia.

Following the ruling, Kraken’s margin trading in fiat is now restricted to wholesale clients in Australia, while crypto margin trading remains unaffected, the exchange noted. While the exchange acknowledged Australia’s progress towards establishing a “regulatory framework for crypto,” it still cautioned that the legislation might be “delayed beyond the end of the year.”

Australia’s Federal Court ruled against Kraken’s local operator for failing to comply with legal obligations when offering a margin trading product.

Australia’s court has ruled that Bit Trade, the operator of the Kraken crypto exchange in Australia, violated regulatory requirements by offering a margin trading product without complying with design and distribution obligations.

In an Aug. 23 press release, the Australian Securities and Investments Commission said the ruling is marking a significant regulatory action against a major global crypto player. ASIC Deputy Chair Sarah Court added that with the ruling the regulator wanted to “send a message to the crypto industry” that it will continue to “scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”

Per ASIC, since October, 2021, Bit Trade’s “margin extension” product was available to Kraken customers without the legally mandated target market determination, violating section 994B(2) of the Corporations Act, which requires the financial product issuer to identify the suitable consumer group.

The court found that while the obligation to repay a crypto asset under the margin extension product does not constitute a deferred debt, repayment in national currencies does, making the product a credit facility. ASIC and Bit Trade have been given seven days to agree on declarations and injunctions, with ASIC seeking financial penalties against the company at a later date.

Commenting on the ruling, a spokesperson for Kraken told the media that the ruling is “another reminder of how cryptoassets are a novel technology.”