thecoinrepublic.com
- Kraken will pay $1.25 million as penalty to CFTC
- Kraken violated the Commodity Exchange Act
- Kraken was accused of offering illegal trading services and failing to register with the regulatory body
- Kraken was believed to have provided new and existing US customers with margin retail commodity trades on the platform during this time
The United States Commodity Futures Trading Commission (CFTC) will receive $1.25 million in settlement fees from cryptocurrency exchange Kraken, which was accused of offering illegal trading services and failing to register with the regulatory body.
According to the CFTC, the San Francisco-based digital asset exchange broke the Commodities Exchange Act by offering margin cryptocurrency contracts without first registering with the agency from June 2020 to June 2021.
Kraken, one of the world’s major crypto exchanges, failed to register with the CFTC as a futures commodity merchant (FCM) or designated contract market (DCM) before offering margin crypto transaction services.
Companies that want to list, trade, or offer futures products must first register with the CFTC as an FCM or DCM. During the one-year term, Kraken had sole custody of the margined funds, according to the official news release.
Kraken was believed to have provided new and existing US customers with margin retail commodity trades on the platform during this time. The CFTC further stated that the exchange offered up to a 5:1 margin ratio.
Penalty to Kraken
The settlement, according to the agency’s acting director of enforcement, Vincent McGonagle, is part of a broader effort to protect US customers. Within a month, Kraken must pay a fee of $1.25 million, often known as a civil monetary penalty, and it must stop offering this type of margin to US citizens. In addition, the platform has waived any rights to appeals or hearings in the case.
However, CFTC Commissioner Dawn Stump stated that the San Francisco-based firm may find it difficult to comply with present standards due to guidance on problems such as actual delivery of cryptocurrency. The current standards for regulating traditional FCMs businesses do not fit the crypto firm’s role as an exchange, so it’s unclear how the digital asset exchange may be governed as an FCM.
Rule maker method necessary
Stump also mentioned that a rule-maker method could be established in the future to help other cryptocurrency exchanges and companies understand the rules of the road.
Kraken halted their margin products in June 2021 after seeking clarification on the CFTC’s margin trading laws. When compared to the company’s $10 billion valuation, the penalty imposed on the biggest crypto exchange is relatively minor. The CFTC and the Financial Crimes Enforcement Network fined BitMEX, a crypto derivatives exchange, $100 million in August 2021.
The Internal Revenue Service (IRS) launched an ongoing, broad inquiry involving substantial IRS resources into bitcoin holders earlier this year. The IRS has issued John Doe summonses to a number of cryptocurrency companies, including Kraken, in order to obtain court judgments requiring digital asset exchanges to hand over account holders’ names and other identifying information.