Commodity Futures Trading Commission CFTC logo seen on the screen of smartphone hold in hands in dark. Source: Ascannio - stock.adobe.com

Key Takeaways:

Falcon Labs, a subsidiary of FalconX, settled charges with the CFTC for failing to register as a futures commission merchant, resulting in a $1.8 million penalty.
This settlement, including $1.2 million in disgorgement and $600,000 in civil penalties, marks the first time the CFTC has charged an intermediary like FalconX’s Edge product for providing unauthorized digital asset derivatives trading.
The CFTC’s enforcement actions are part of a broader trend of increased regulatory scrutiny on crypto firms in the U.S., with the agency warning of more actions within the next two years.

The United States Commodity Futures Trading Commission (CFTC) has successfully filed and resolved charges against the cryptocurrency brokerage firm Falcon Labs, which is a subsidiary of FalconX, culminating in a settlement of approximately $1.8 million.

This sum comprises both disgorgement and civil penalties.

Crypto prime brokerage firm Falcon Labs settles with CFTC over registration violation https://t.co/yoSfOYRURp
— The Block (@TheBlock__) May 13, 2024

On May 13, the CFTC issued a notice stating that Falcon Labs had not registered as a futures commission merchant, a misstep that involved improperly providing access to digital asset exchanges.

The settlement mandates FalconX to discontinue its services to U.S. residents and requires the firm to pay about $1.2 million in disgorgement alongside $600,000 in civil penalties.

Ian McGinley, the CFTC’s Enforcement Director, emphasized the strict stance of the CFTC against any digital asset exchanges and intermediaries that bypass the agency’s registration and compliance demands, which are crucial for maintaining integrity in the derivatives markets.

This action marks a significant step by the CFTC as it charges an intermediary for the first time for such infractions.

The charges relate to FalconX’s Edge product, which facilitated the placement of orders for digital asset derivatives for U.S. customers from October 2021 through March 2023.

The agency noted that after a prior legal battle involving Binance and its then-CEO Changpeng Zhao, which settled for $4.3 billion in November 2023, FalconX had made voluntary improvements to its practices.

🔸US court approves order for Binance to pay $2.7 bln to CFTC

Zhao will pay $150 million and Binance will pay $2.7 billion to the CFTC as a result, the agency said in a statement.

In November, Zhao stepped down and pleaded guilty to breaking U.S. anti-money laundering laws as…
— *Walter Bloomberg (@DeItaone) December 19, 2023

In recognition of FalconX’s “substantial cooperation and remediation” efforts, the firm received a reduced penalty.

The settlement does not require FalconX to admit or deny any findings or conclusions of the CFTC.

Further underscoring the regulatory climate, CFTC Chair Rostin Behnam warned on May 6 that crypto firms in the U.S. should brace for another round of enforcement actions expected within the next two years.

In the previous year, the CFTC launched 47 enforcement actions against various crypto companies.

BREAKING: This financial year, 47 out of the 96 enforcement cases brought by the US @CFTC involved #crypto and #digitalassets #CryptoNews #CryptoRegulation
— BSCN (@BSCNews) November 7, 2023

This ongoing regulatory scrutiny is indicative of a larger trend where market participants are expected to engage more with regulatory frameworks to ensure the stability and integrity of financial markets.