Kraken Australia to Pay AU$8 Million for Offering ‘Unlawful’ Margin Products

The Australian operator of the crypto exchange Kraken has been ordered to pay AU$8 million (about US$5.1 million) by the local financial markets regulator for illegally offering margin products to more than 1,100 customers in the country.

Kraken’s Australian Rule Violations

Announced today (Thursday), the order by the Australian Securities and Investments Commission (ASIC) came more than three months after an Australian court found that the crypto exchange operator, Bit Trade, violated local rules by offering fiat-based margin products.

Kraken offered customers credit for selling and purchasing cryptocurrencies, which it calls “margin extension,” with repayment made in either digital assets or fiat. Its customers could use this extension to receive credit up to five times the value of the collateral asset.

The violation concerned Australia’s mandatory design and distribution obligations (DDO), which require financial services providers to offer products based on a target market determination (TMD). Kraken failed to meet this requirement and offered these products to all customers from October 2021, when the DDO rules were implemented. However, the margin products had been available to Australians since January 2020.

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

According to ASIC, Kraken’s parent company targeted Australian customers with margin products, leading to trading losses exceeding US$5 million. One investor reportedly lost nearly US$4 million.

“ASIC believes many products offered by digital asset firms fall under current laws,” Longo added, “which means these products must be properly designed and marketed to the right consumers to ensure Australians receive appropriate protections.”

Australia’s Mandatory Regulations for Financial Services Providers

ASIC implemented the DDO rules in October 2021 and has strictly enforced these obligations for financial services companies. Providers must ensure their products are designed with consumer needs in mind and distributed in a targeted manner. They are also required to monitor outcomes and reassess their product governance arrangements over time.

The regulator has taken action against several financial services providers for violating DDO rules, with most cases resulting in minor stop orders. Similar to Kraken, eToro is another platform currently facing legal challenges.

Meanwhile, the Australian agency recently released a consultation paper proposing mandatory licensing for crypto companies.