An Australian court has fined the digital asset exchange platform Kraken $5.1 million Australian dollars (AUD) for “unlawfully issuing a credit facility to more than 1,100 Australian customers.” The penalty concludes legal proceedings launched against the platform by the Australian Securities and Investments Commission (ASIC).

According to the regulator’s Dec. 12 statement, the penalty against Kraken relates to its “margin extension” product, which had been offered to users without a target market determination (TMD). The product, which Kraken has offered since October 2021, allowed for margin extensions to be made and repaid in either digital assets like bitcoin or national currencies such as U.S. dollars.

However, in August of this year, an Australian Federal Court ruled that Bit Trade — the operator of Kraken in the country — had breached its design and distribution obligations (DDO) each time it offered the product without the TMD. Commenting on the court’s decision to penalize Bit Trade, ASIC Chair Joe Longo, said:

Target market determinations are fundamental in ensuring that investors are not inappropriately marketed products that could harm them. Bit Trade issued its margin extension product to over 1100 Australians who were charged fees and interest of more than US$7 million without considering if the product was appropriate for them.

Longo disclosed that users targeted by Bit Trade incurred losses exceeding US$5 million, including one investor who lost almost US$4 million.

The ASIC chair also revealed that the penalty against Bit Trade is the regulator’s first against a digital asset exchange without a TMD. Longo added that the fine will also act as a warning against other digital asset platforms who are yet to meet all their regulatory obligations.

Meanwhile, in his ruling issued on Dec. 12, the Australian Federal Court Justice Nicholas said Bit Trade’s failure to adhere to the requirements of the DDO regime even after being made aware “points to a seriously deficient compliance system.” He added that Bit Trade’s contraventions were “serious and motivated by a desire to maximise revenue.”

In addition to imposing the hefty fine, the judge also ordered Bit Trade to pay pay ASIC’s costs for the proceedings.

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