The Commodity Futures Trading Commission (CFTC) has taken action against Falcon Labs, a Seychelles-based crypto brokerage firm, for not registering as a futures commission merchant (FCM) in the US. This is notably the CFTC’s first enforcement action against an unregistered FCM for providing "unauthorized access" to crypto exchanges.
Crackdown on Crypto by CFTC Affects Falcon Labs
Falcon Labs must immediately stop operating as an unregistered FCM in accordance with the CFTC decision, including by making it easier for US citizens to use platforms for trading digital asset futures.
Falcon Labs was also mandated to pay a $1.7 million disgorgement and a $589,000 civil penalty, the latter of which was assessed in appreciation of the business's assistance with the CFTC's Division of Enforcement, according to the terms of the decision.
The CFTC's Director of Enforcement, Ian McGinley, underlined the organization's dedication to upholding integrity in the futures markets and guaranteeing adherence to registration regulations. He said:
"Director of Enforcement Ian McGinley stated that the CFTC's enforcement program has made it clear that it will not accept digital asset exchanges that do not register with the CFTC or adhere to the agency's rules that maintain integrity in the derivatives markets." Now, the CFTC is intensifying its campaign by, for the first time, bringing charges against an intermediary that unnecessarily made those exchanges accessible. The CFTC has made it clear by today's action that it will not hold back from levying penalties against exchanges and intermediaries that give their consumers access to digital asset products and services that need to be registered but haven't done so."
"Unregistered Activities" in the Market for Crypto Derivatives
According to the CFTC's ruling, Falcon Labs solicited and accepted orders for digital asset derivatives from US-based customers between around October 2021 and at least March 27, 2023.
Serving as a middleman, Falcon Labs enabled users to trade on a number of digital asset exchanges, including US institutional users.
The CFTC claims that Falcon Labs created a main account in its name together with related sub-accounts, so granting direct exchange access. Notably, neither Falcon Labs nor the exchanges typically needed the customer-identifying information belonging to the sub-account holders.
During the period in question, Falcon Labs collected approximately $1.1 million in net fees from customers participating in crypto-derivative transactions facilitated by the company. After the CFTC filed a complaint in 2023 against Changpeng Zhao, Binance Holdings Limited, Binance Holdings (IE) Limited, Binance (Services) Holdings Limited, and Samuel Lim, Falcon Labs reportedly enhanced its measures for identifying customer locations.
May 2024, Cryptoniteuae