- The Commodity Futures Trading Commission (CFTC) has taken enforcement action against crypto brokerage firm Falcon Labs for failing to register as a futures commission merchant (FCM) in the US.
- This marks the first time the CFTC has acted against an unregistered FCM involved in providing unauthorized access to crypto exchanges.
- Falcon Labs has been ordered to cease acting as an unregistered FCM and pay a disgorgement of $1.7 million and a civil penalty of $589,000.
The CFTC has taken its first enforcement action against an unregistered futures commission merchant involved in crypto exchanges, signaling increased regulatory scrutiny in the crypto derivatives market.
Falcon Labs Faces CFTC Crypto Crackdown
The CFTC order mandates Falcon Labs to immediately stop acting as an unregistered FCM, specifically by facilitating US individuals’ access to digital asset derivatives trading platforms. In addition to this, Falcon Labs has been ordered to pay a disgorgement of $1.7 million and a civil penalty of $589,000, the latter in recognition of the company’s cooperation with the CFTC’s Division of Enforcement.
CFTC’s Stance on Compliance
Ian McGinley, the Director of Enforcement at the CFTC, emphasized the agency’s commitment to maintaining integrity in the derivatives markets and ensuring compliance with registration requirements. He stated, “The CFTC’s enforcement program has made clear it will not tolerate digital asset exchanges that fail to register with the CFTC or comply with the agency’s rules that maintain integrity in the derivatives markets,” and added that the CFTC will not hesitate to charge any entities—exchanges or intermediaries—who are providing customers access to digital asset products and services that require registration but have failed to appropriately register.
‘Unregistered Activities’ In Crypto Derivatives Market
The CFTC’s order reveals that from around October 2021 through at least March 27, 2023, Falcon Labs solicited and accepted orders for digital asset derivatives from US-based customers. Acting as an intermediary, Falcon Labs facilitated customer trading on various digital asset exchanges, including institutional customers in the United States. According to the CFTC, Falcon Labs provided direct exchange access by creating a main account in its name and associated sub-accounts. Notably, the sub-account holders’ customer-identifying information was generally not required by the exchanges, nor provided by Falcon Labs. During this period, Falcon Labs collected net fees totaling approximately $1.1M from customers engaging in crypto-derivative transactions facilitated by the company.
Conclusion
This enforcement action by the CFTC marks a significant step in the regulatory scrutiny of the crypto derivatives market. It underscores the importance of compliance with registration requirements and the potential consequences for entities that fail to meet these obligations. The case of Falcon Labs serves as a stark reminder for other entities in the crypto space to ensure they are fully compliant with all relevant regulations.
