The Australian Securities and Investments Commission (ASIC) has launched civil proceedings against Bit Trade Pty Ltd, accusing the company of not adhering to its design and distribution obligations (DDO) for its margin trading product. This violation has allegedly resulted in substantial financial losses for customers.
The DDO framework was implemented to protect consumers and requires financial firms to design and distribute products that suit the needs of their customers. According to ASIC’s allegations against Bit Trade, the company failed to make a target market determination for its margin trading product before offering it to Australian customers, which is a legal requirement under the DDO.
Bit Trade’s margin trading product, operated through the Kraken cryptocurrency exchange, provides customers with credit to trade select crypto assets. Customers can receive credit up to five times the value of the assets used as collateral, potentially amplifying financial risks. ASIC disclosed that since the DDO’s implementation in October 2021, more than 1,160 customers have utilized Bit Trade’s margin trading product, resulting in a combined loss of approximately A$12.95 million ($8.35 million).
ASIC’s civil proceedings against Bit Trade aim to address the alleged non-compliance with regulatory obligations. Deputy Chair Sarah Court emphasized the importance of regulatory scrutiny in protecting consumers within the cryptocurrency sector. The proceedings serve as a reminder to the industry that ASIC will continue to scrutinize products to ensure compliance with regulatory requirements.
Despite ASIC raising concerns in June 2022, Bit Trade has continued to offer its margin trading product without establishing a target market determination, an essential requirement for responsible distribution under the DDO.
In response to the allegations, ASIC is seeking declarations, monetary penalties, and injunctions to put a stop to Bit Trade’s ongoing conduct. The date for the first case management hearing has yet to be scheduled by the Court.
The Australian Securities and Investments Commission is taking a firm stance against Bit Trade Pty Ltd for its alleged failure to comply with design and distribution obligations for its margin trading product. ASIC aims to protect consumers in the cryptocurrency sector and has initiated legal proceedings to address the lapses in compliance. Bit Trade’s actions, despite prior concerns raised by ASIC, have led to significant financial losses for customers. The outcome of the case remains to be seen, but this serves as a reminder to the crypto industry that regulatory obligations must be met to safeguard consumer interests.