Australian court fines Kraken exchange $5 million on securities regulator’s lawsuit

What’s new? The Federal Court of Australia has ordered Bit Trade, which operates the local unit of US-based centralized crypto exchange (CEX) Kraken, to pay 8 million Australian dollars ($5,1 million) in a lawsuit brought by the Australian Securities and Investments Commission (ASIC). The regulator sued the exchange in September 2023 for irregularities in offering a leveraged cryptocurrency and fiat trading product.

The court’s decision

What else is known? ASIC said the exchange broke the law by failing to identify target markets for the product (target market determination (TMD), a procedure designed to ensure that investors are not offered inappropriate products that could harm them.

According to ASIC chairman Joe Longo, the product offered by Kraken Australia, managed by Bit Trade, was used by over 1100 individuals who received over $7 million in fees and interest and lost over $5 million, $4 million of which came from a single investor.

He added that this is the first time the commission holds a company accountable for not having a TMD, and crypto service providers need to be mindful of their compliance obligations.

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Judge John Nicholas noted that Bit Trade was aware of ASIC’s requirements, but it did not issue a TMD or restrict retail customers’ access to the product. It also acted as a credit institution without a license.

In his decision, he emphasized that the exchange had committed a serious breach motivated by a desire to maximize revenue. At the same time, he disagreed with the requested ASIC penalty amount of $12,8 million, calling it excessive, but also rejected Bit Trade’s request to reduce the amount to $2,5 million.

According to the December 12 ruling, the platform must pay the fine and legal costs within 60 days.

Last year, the US Securities and Exchange Commission (SEC) forced Kraken to stop providing staking services in the country and pay a $30 million fine. The regulator later accused the exchange of unregistered offering of securities, operating without registration, and commingling client assets with its own.

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Kraken bought US-licensed crypto broker TradeStation Crypto in April, and in November launched a licensed institutional brokerage service in Australia.

The exchange’s team is also working on its own Layer 2 (L2) Ink network based on the Ethereum blockchain and OP Stack.

In November, spot trading volume on Kraken rose by 161% to $53,33 billion. On the derivatives market, the figure also grew by 160,4% to 44,3 billion.