FalconX Fined $1.8M by CFTC, New Regulatory Threat Incoming?

Key Takeaways

• FalconX was recently fined for unregistered crypto activity.
• The brokerage must stop offering services to US residents as part of the settlement.
• The sector could expect heightened scrutiny and potentially stricter enforcement actions.

Crypto prime brokerage FalconX has settled with the Commodities Futures Trading Commision (CFTC)  for $1.8 million after failing to register as a futures commission merchant.

Meanwhile, CFTC Chair Rostin Behnam’s announcement of an upcoming “cycle of enforcement actions” signals a shift towards a more aggressive regulatory stance on crypto firms. This suggests that the crypto industry can expect heightened scrutiny and potentially stricter enforcement actions.

According to a notice  issued on May 13, Falcon Labs, a subsidiary of FalconX, did not register as a futures commission merchant and improperly facilitated access to digital asset exchanges.

As part of the settlement, FalconX must stop offering services to American residents. It also pay about $1.2 million in disgorgement alongside $600,000 in civil monetary penalties.

According to  the Enforcement Director Ian McGinley:

“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 now the CFTC is taking the fight one step further by, for the first time, charging an intermediary that inappropriately facilitated access to those exchanges.”

FalconX did not immediately respond to a request for comment.

Reduced Penalty Due to Cooperation

The CFTC’s settlement with FalconX centers on the firm facilitating orders for digital asset derivatives for US users through its ‘Edge’ product  between October 2021 and March 2023.

According to the CFTC, FalconX provided “substantial cooperation and remediation,” which contributed to a reduced penalty. The regulatory order says FalconX neither admitted nor denied the findings or conclusions of the CFTC.

New Regulatory Threat on the Horizon?

The recent settlement and penalty signal a potential new regulatory threat for the cryptocurrency industry.

Both McGinley’s statement and CFTC Chair Rostin Behnam’s announcement  of an impending “cycle of enforcement actions” suggests a more aggressive regulatory posture towards crypto firms. This could lead to increased scrutiny and potentially more stringent enforcement measures across the sector.

On May 6, Behnam indicated  that American crypto firms should anticipate “another cycle of enforcement actions” in the next two years. This comes after the commodities regulator filed 47 enforcement actions against crypto firms in 2023.

About the Author

Teuta Franjkovic

Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.

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