The Commodity Futures Trading Commission (CFTC) has taken action against crypto brokerage Falcon Labs, a Seychelles-based company, for failing to register as a futures commission merchant (FCM) in the United States.
Interestingly, this is the CFTC’s first enforcement action against an unregistered futures commission trader involved in providing “unauthorized access” to crypto exchanges.
Falcon Labs faces CFTC crypto crackdown
Under the CFTC OrderFalcon Labs is required immediately cease acting as an unregistered FCM, including by facilitating access to digital asset derivatives trading platforms for U.S. individuals.
Additionally, Falcon Labs was ordered to pay restitution of $1.7 million and a civil penalty of $589,000, the latter in recognition of the company’s cooperation with the CFTC’s Enforcement Division, as described in the order.
Ian McGinley, director of enforcement at the CFTC, emphasized the agency’s commitment to maintaining integrity in the derivative markets and ensure compliance with registration requirements. He stated:
The CFTC’s enforcement program has made clear that it will not tolerate digital asset exchanges that do not register with the CFTC or comply with the agency’s rules that maintain the integrity of the markets derivatives,” said application director Ian McGinley. And now the CFTC is taking the fight even further by charging for the first time an intermediary that inappropriately facilitated access to these exchanges. Today’s action highlights that the CFTC will not hesitate to charge any entity (exchange or intermediary) that provides customers with access to digital asset products and services that requires registration but does not have managed to register properly.
“Unregistered Activities” in the Crypto Derivatives Market
The CFTC order reveals that from approximately October 2021 through at least March 27, 2023, Falcon Labs solicited and accepted orders for digital asset derivatives from clients based in the United States.
Acting as an intermediary, Falcon Labs facilitated client trading on various digital asset exchanges, including institutional clients in the United States.
According to the CFTC, Falcon Labs provided direct access to the exchanges by creating a master account in its name and associated subaccounts. Notably, subaccount holders’ customer identification information was generally not required by the Exchangesnor provided by Falcon Labs.
During the period in question, Falcon Labs collected net fees totaling approximately $1.1 million from customers engaging in crypto derivatives transactions facilitated by the company.
Following CFTC recommendations complaint against Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited and Samuel Lim in 2023, Falcon Labs allegedly strengthened its controls to identify customer locations.
Featured image from Shutterstock, chart from TradingView.com
