The Australian Securities and Investments Commission (ASIC) announced commencing civil proceedings against Bit Trade, provider of crypto exchange Kraken in Australia, over the design and distribution failures of one of its trading products.

The ASIC alleges that Bit Trade failed to hit a target market determination for its margin trading product before offering it to Australian customers, according to a Sept. 21 statement.

The design and distribution obligations (DDO) require firms to design financial products that meet the needs of consumers and to distribute those products in a targeted manner. Meanwhile, a target market determination is a mandatory public document under the DDO that sets out a product’s target market.

The statement said Bit Trade continued offering the service despite getting notified of the ASIC’s concerns in June 2021. The regulator claims that since the introduction of the DDO in October 2021, at least 1,160 Australian customers have used Bit Trade’s margin trading product, resulting in a total loss of approximately $8.35 million (12.95 million Australian dollars).

Bit Trade’s margin trading product is a “margin extension” service that offers customers a credit extension of up to five times the value of their collateral. However, ASIC alleged that Bit Trade’s margin trading product is, in fact, a “credit facility” as it offers customers credit to buy and sell certain cryptocurrencies on the Kraken exchange.

“These proceedings should send a message to the crypto industry that products will continue to be scrutinized by ASIC to ensure they comply with regulatory obligations in order to protect consumers,” ASIC Deputy Chair Sarah Court said.

“ASIC’s action should be a reminder of the importance [of complying] with the design and distribution obligations so that financial products are distributed to consumers appropriately,” she added.