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The Australian Federal Court ruled that Kraken’s fiat margin extensions are subject to regulatory obligations, but crypto margin extensions are not. Kraken acknowledged the decision but stressed the need for clearer crypto regulations in Australia. Following the ruling, Kraken adjusted its margin product to restrict fiat margin trading for non-wholesale investors, while crypto margin extensions remain unaffected. The company reaffirmed its commitment to compliance and called for improved legal clarity for the crypto industry.
Kraken’s Margin Product Faces Legal Adjustment Amid Crypto Regulatory Concerns
Crypto exchange Kraken has responded to a recent legal judgment by the Australian Securities and Investments Commission (ASIC) concerning its Margin Extension product. The Australian Federal Court ruled that margin extensions in fiat currency fall under the Design and Distribution Obligations (DDO) of the Corporations Act, but margin extensions in cryptocurrency do not.
Kraken explained: “At the heart of the judgment, the Court determined that when we extended margin in fiat currency to clients it was (and is) subject to the Design and Distribution Obligations (DDO) of the Corporations Act.” However, the crypto exchange stressed:
This was not the case when we extended margin to clients in cryptocurrency.
Kraken acknowledged the court’s decision but emphasized its broader implications for crypto regulation in Australia. According to Kraken, “Considering the bigger picture, the Court’s decision was a win for those of us that are advocating for new laws to govern crypto. Although we are disappointed that the ruling found an aspect of Kraken’s margin product violated part of the Corporations Act, the judgment highlighted, and clearly affirmed, that existing Australian law is not effective at regulating crypto.”
The company noted that this decision further highlights the urgent need for clear and tailored regulation for the crypto industry in Australia. Current laws leave investors and businesses navigating uncertain legal terrain, which can stifle innovation.
In response to the ruling, Kraken implemented immediate changes to its margin product to comply with legal requirements. Kraken detailed:
Margin trading with fiat is now restricted for clients who reside in Australia, unless they are a wholesale investor (or ‘wholesale client’, as defined by the Corporations Act 2001). These restrictions do not affect margin extensions when trading with cryptoassets.
These changes allow for margin trading in cryptocurrency pairs without restrictions, while fiat margin extensions are now limited to Wholesale Investors. Kraken also reaffirmed its commitment to compliance in all jurisdictions where it operates.