Australia’s Federal Court ruled against Kraken’s local operator for failing to comply with legal obligations when offering a margin trading product.

Australia’s court has ruled that Bit Trade, the operator of the Kraken crypto exchange in Australia, violated regulatory requirements by offering a margin trading product without complying with design and distribution obligations.

In an Aug. 23 press release, the Australian Securities and Investments Commission said the ruling is marking a significant regulatory action against a major global crypto player. ASIC Deputy Chair Sarah Court added that with the ruling the regulator wanted to “send a message to the crypto industry” that it will continue to “scrutinize products to ensure they comply with regulatory obligations in order to protect consumers.”

Per ASIC, since October, 2021, Bit Trade’s “margin extension” product was available to Kraken customers without the legally mandated target market determination, violating section 994B(2) of the Corporations Act, which requires the financial product issuer to identify the suitable consumer group.

The court found that while the obligation to repay a crypto asset under the margin extension product does not constitute a deferred debt, repayment in national currencies does, making the product a credit facility. ASIC and Bit Trade have been given seven days to agree on declarations and injunctions, with ASIC seeking financial penalties against the company at a later date.

Commenting on the ruling, a spokesperson for Kraken told the media that the ruling is “another reminder of how cryptoassets are a novel technology.”