Kraken Calls for Urgent Crypto Regulation in Australia Following Federal Court Defeat

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Kraken Calls for Urgent Crypto Regulation in Australia Following Federal Court Defeat

Kraken, a major crypto exchange, is raising concerns about Australia’s regulatory environment after a recent court decision impacted its business. On August 23, 2024, the Federal Court, following the Australian Securities and Investments Commission’s (ASIC) investigation, ruled that Kraken’s fiat margin trading service breached local regulations.

In response, Kraken has pointed out a broader issue affecting the entire crypto industry in Australia: unclear regulations. The exchange stated that many crypto firms, including its own, are struggling with this lack of clarity. 

As a result of the ruling, Kraken has had to restrict its fiat margin trading services to wholesale clients, though its crypto margin services remain unaffected.

ASIC Scores Win over Kraken

ASIC’s case against Kraken’s subsidiary Bit Trade started in late 2023. The regulator accused Bit Trade of not complying with legal standards, especially in regard to the design and distribution rules. These rules ensure that financial products, including risky ones like margin trading, target the right consumer groups.

The court determined that Bit Trade had violated Section 994B(2) of the Corporations Act by failing to issue a Target Market Determination (TMD) before offering its margin trading product. 

Additionally, the court clarified that while margin trading in cryptocurrency is not considered a credit facility, margin trading in national currencies is. As a result, Kraken’s product was classified as a credit facility, which deepened the regulatory breach.

Kraken’s legal challenges with ASIC arise at a time when Australia’s cryptocurrency market is growing rapidly. Recent studies show that 17% of Australians now hold cryptocurrency, surpassing the global average of 15%. However, despite the increasing adoption, the crypto sector in Australia is under more scrutiny from regulators.

In the previous year, Binance Australia faced similar regulatory pressure when it was forced to stop Australian dollar deposits and withdrawals. In July 2024, ASIC even raided Binance Australia’s offices, further emphasizing the tightening oversight.

Kraken’s acquisition of Bit Trade in 2020 was intended to strengthen its position in the Australian market. However, this expansion has come with increased regulatory hurdles, which Kraken’s leadership sees as part of a broader call for reform in Australia’s cryptocurrency laws.

Kraken Urges for Regulatory Reform

In response to the court ruling, Kraken’s spokesperson underscored the urgent need for bespoke cryptocurrency regulations in Australia. The company views the current legal framework as insufficient for the evolving digital asset landscape and is advocating for legislative reforms to provide more clarity and structure to the industry.

ASIC, on the other hand, views the ruling as a significant step toward enforcing stricter regulations in the crypto sector. ASIC Deputy Chair Sarah Court commented that “this ruling makes it clearer than ever that bespoke crypto regulation is urgently needed”, adding that Kraken’s case serves as a warning to other crypto platforms operating in Australia.

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Kraken Calls for Urgent Crypto Regulation in Australia Following Federal Court Defeat