ASIC Imposes $8M Fine on Kraken Crypto Exchange Over Regulatory Breach

Crypto exchange Kraken's Australian arm is facing an AU$8 million (US$5.1 million) fine from the country's corporate watchdog. The Australian Securities and Investments Commission (ASIC) has imposed a hefty fine on Kraken for "unlawfully" offering a credit facility to over 1000 Australians.

Kraken, which operated under Bit Trade in Australia, had issued a ‘margin extension' product to its customers since October 2021. However, the exchange offered the product without a target market determination (TMD), the regulator noted.

"Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them," ASIC Chair Joe Longo said.

Kraken apparently charged customers over US$7 million for issuing its margin extension product, without considering whether the product was appropriate.

"Those customers Bit Trade targeted suffered trading losses of more than US$5 million, including one investor who lost almost US$4 million."

This marks the ASIC's first penalty against an entity for failing to have a TMD. Further, the watchdog has warned crypto asset service providers to consider their regulatory compliance obligations.

The penalty comes 4-months after the Federal Court found that Bit Trade's product was a credit facility without a TMD. In August, the court deemed that the company breached its design and distribution obligations each time it offered the product.

Kraken Criticizes Aussie Regulator

In September, the crypto exchange platform raised concerns against the regulator over unclear crypto regulations in Australia. It accused the ASIC of having a "confusing and uncertain regulatory environment."

The exchange further noted that the Federal Court's decision in August "underscores the broader issue of regulatory ambiguity."

"This ruling makes it clearer than ever that bespoke crypto regulation is urgently needed."

ASIC's Industry Consultation with Crypto Sector

Last week, the ASIC invited feedback on its proposed updates on crypto guidance. This includes decreasing the focus on the role of initial coin offerings and considering the design and distribution obligations.

The aim is to offer greater clarity to the existing law, the ASIC release said.

"We want to promote the growth of responsible financial innovation while ensuring consumer protection," ASIC Commissioner Alan Kirkland noted.

"A well-regulated financial system benefits everyone in the community as it supports consumer confidence, market integrity and facilitates competition and innovation."

Meanwhile, the ASIC has taken action against various financial service providers for violating design and distribution obligations. For instance, multi-asset broker eToro faced a similar action from the regulator for lapses in its contracts for differences.

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