The Australian Securities and Investments Commission (ASIC) has recently filed civil proceedings against Bit Trade Pty Ltd, accusing the company of failing to adhere to design and distribution obligations (DDO) associated with its margin trading product. The alleged violations have resulted in substantial financial losses for customers, prompting ASIC to take legal action.
Established to protect consumers, the DDO framework requires financial firms to design products that meet customer needs and distribute them responsibly. In this case, ASIC has accused Bit Trade of neglecting to make a target market determination for its margin trading product before offering it to Australian customers. According to ASIC, Bit Trade’s margin trading product functions as a credit facility, allowing customers to buy and sell certain cryptocurrencies on the Kraken platform using credit that can be as much as five times the value of the collateral. This poses significant financial risks for consumers.
Since the implementation of the DDO in October 2021, at least 1,160 customers have utilized Bit Trade’s margin trading product, resulting in cumulative losses of approximately A$12.95 million ($8.35 million). This concerning statistic has prompted ASIC to launch civil proceedings against Bit Trade in an effort to address the alleged compliance failures.
ASIC Deputy Chair Sarah Court emphasized the significance of regulatory scrutiny in safeguarding consumers within the cryptocurrency sector. Court stated, “These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations in order to protect consumers.”
Bit Trade has been offering its margin trading product to Australian customers through Kraken since January 2020. Despite ASIC raising concerns in June 2022, the company has continued to provide the product without implementing a target market determination, which is crucial for responsible distribution under the DDO.
In response to the allegations, ASIC seeks declarations, monetary penalties, and injunctions to halt Bit Trade’s ongoing misconduct. The date for the initial case management hearing has yet to be scheduled by the Court.
The ASIC’s legal action against Bit Trade Pty Ltd highlights the importance of regulatory compliance within the cryptocurrency industry. The failure to meet design and distribution obligations can have severe consequences for consumers, as evidenced by the significant customer losses associated with Bit Trade’s margin trading product. As ASIC continues to scrutinize products and ensure compliance with regulatory obligations, it sends a clear message to the crypto market that consumer protection remains a top priority.