CFTC Cracks Down on Falcon Labs for Unregistered Activities
The Commodity Futures Trading Commission (CFTC) recently took action against Falcon Labs, a crypto brokerage firm based in the Seychelles, for failing to register as a futures commission merchant (FCM) in the US. This marks the CFTC’s first enforcement action against an unregistered futures commission merchant involved in providing “unauthorized access” to crypto exchanges. Falcon Labs now faces consequences for its unregistered activities related to digital asset derivatives trading platforms.
Falcon Labs Ordered to Cease Unregistered Activities
Under the CFTC order, Falcon Labs is required to immediately stop acting as an unregistered FCM, particularly by enabling US individuals to access digital asset derivatives trading platforms.
- Falcon Labs must cease facilitating US individuals’ access to digital asset derivatives trading platforms.
- The company was ordered to pay a disgorgement of $1.7 million and a civil penalty of $589,000.
The civil penalty recognizes Falcon Labs’ cooperation with the CFTC’s Division of Enforcement. The CFTC expects full compliance with registration requirements to maintain market integrity in derivatives trading.
CFTC Emphasizes Integrity in Derivatives Markets
Ian McGinley, the Director of Enforcement at the CFTC, highlighted the agency’s commitment to preserving integrity in derivatives markets and ensuring compliance with registration rules. He stated that the CFTC’s enforcement program aims to eliminate unregistered activities in the digital asset derivatives market.
The CFTC’s enforcement program is firm against digital asset exchanges that fail to register or comply with the agency’s rules for derivatives markets. Now, the CFTC is targeting intermediaries that facilitate unauthorized access to these exchanges. Today’s action demonstrates the CFTC’s resolve to charge entities providing access to digital asset products and services without proper registration.
Unregistered Activities in the Crypto Derivatives Market
The CFTC’s order revealed Falcon Labs’ activities from October 2021 to at least March 27, 2023, involved soliciting and accepting orders for digital asset derivatives from US-based customers. As an intermediary, Falcon Labs enabled customer trading on various digital asset exchanges, including institutional clients in the US.
- Falcon Labs provided direct exchange access by creating main and sub-accounts
- Sub-account holders’ customer information was not consistently provided to exchanges.
During this period, Falcon Labs earned approximately $1.1 million in net fees from customers engaging in crypto-derivative transactions facilitated by the company.
Increased Controls Amid Regulatory Scrutiny
Following the CFTC’s complaint against entities like Binance in 2023, Falcon Labs reportedly strengthened its controls to identify customer locations. This move came as part of efforts by Falcon Labs to address regulatory concerns and comply with registration requirements.
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