The Federal Court of Australia has ordered Bit Trade Pty Ltd, the Australian operator of cryptocurrency exchange Kraken, to pay an $8 million penalty for unlawfully providing credit services without proper regulatory compliance.
The company offered a "margin extension" product to over 1,100 Australian customers starting from October 2021 without having a required target market determination (TMD) in place. The product allowed customers to borrow funds in both cryptocurrencies and traditional currencies like US dollars.
In August 2024, the Court ruled that Bit Trade's margin extension offering constituted a credit facility when provided in national currencies, requiring it to have a TMD under Australian law. The company was found to have breached design and distribution obligations (DDO) each time it provided the service without proper documentation.
Justice Nicholas criticized Bit Trade's compliance practices in his ruling, noting the company "did not turn its mind to the requirement of the DDO regime until these were first drawn to its attention by ASIC." He determined the violations were "serious and motivated by a desire to maximize revenue."
The Court made an important distinction regarding digital assets, finding that while margin extensions in national currencies created a deferred debt requiring regulation, obligations to repay in cryptocurrencies did not constitute a debt repayment under current laws.
The penalty comes as Australia's financial regulator ASIC begins industry consultations with digital asset providers on updating guidance around regulated products. Bit Trade, a subsidiary of Payward Incorporated and registered with AUSTRAC, must also cover ASIC's legal costs from the proceedings.
The case highlights increasing regulatory scrutiny of cryptocurrency businesses in Australia and clarifies when digital asset services fall under traditional financial services laws.