FalconX hit with $1.7 million fine for regulatory violations

The Commodity Futures Trading Commission (CFTC) has fined crypto trading firm FalconX a total of $1.7 million.
CFTC said the penalty relates to the Seychelles-based brokerage platform’s failure to register as futures commission merchant (FCM).

In a press release, the Commodity Futures Trading Commission (CFTC) notes that the filing and settling of charges against Falcon Labs marks the first such action against an unregistered crypto derivatives exchange provider.

The CFTC alleged in its filing that FalconX illegally offered its crypto derivatives products to US customers between October 2021 and March 2023.

Acting as an intermediary, the platform created accounts and sub-accounts for customers in the US, bypassing KYC requirements. It’s only after the CFTC filed its complaint against Binance and former CEO Changpeng Zhao that Falcon Labs improved its customer-identifying processes.

CFTC fines FalconX, issues cease & desist order

Following this development, a cease and desist order against Falcon Labs is in place, which prohibits its offering of unregistered crypto derivatives products to US persons.

In terms of penalties arising from the violations, FalconX will pay $1,179,008 in disgorgement and another $589,504 in a civil monetary penalty. FalconX reportedly collected $1,179,008 in net fees.

According to the CFTC, the regulator imposed a reduced civil monetary penalty against the crypto company due to its “substantial cooperation” with the watchdog’s Division of Enforcement.

“Today’s action highlights 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,” CFTC’s director of enforcement division Ian McGinley said.

As well as the proactive efforts to improve customer identification, Falcon cooperated with the Commission – a factor in CFTC’s decision to seek a reduced civil monetary penalty.

In December 2023, the US District Court for the Northern District of Illinois approved the settlement that Binance and Zhao agreed with the CFTC.

As reported, the former Binance chief was ordered to pay $150 million and the exchange $2.7 billion.

Binance agreed a landmark $4.3 billion settlement with US regulators in November.