The CFTC fines Falcon Labs $1.77M for unregistered FCM activity, marking the first time a digital asset intermediary has been penalized for such violations.
The Commodity Futures Trading Commission (CFTC) has issued an order of filing and settling charges against Falcon Labs, Ltd., a Seychelles-based company, for failing to register as a futures commission merchant (FCM), a violation of the law.
In this instance, the CFTC has levied charges against an unregistered FCM for facilitating access to digital asset exchanges.
Unregistered FCM activities are unacceptable to the organization, which is liable to pay colossal monetary fines.
Falcon Labs Unregistered Activities and Penalties
Falcon Labs came under suspicion from October 2021 to March 2023 for soliciting and accepting U.S. clients’ digital asset derivatives orders.
By establishing main and sub-accounts, the intermediary company enabled clients to trade on various digital asset exchanges without providing personally identifiable information.
However, this arrangement allowed Falcon Labs to operate without the required FCM registration.
As a result, the CFTC’s order requires Falcon Labs to cease its unregistered activities and pay monetary penalties.
Meanwhile, the company is required to pay $1,179,008 in disgorgement and $589,504 in civil monetary penalty.
Falcon Labs diligently collaborated with the CFTC’s Division of Enforcement, which contributed to mitigating the penalty.
In addition, Director of Enforcement Ian McGinley stated that the CFTC will ensure market integrity by charging any entities that provide unregistered digital asset services, including intermediaries and exchanges.
CFTC Enforcement and Cooperation
Falcon Labs’ enforcement action by the CFTC is consistent with the organization’s overarching regulatory stance regarding digital asset markets.
Moreover, a significant step in the Commission’s ongoing effort to enforce registration requirements is the imposition of fees on an intermediary.
The CFTC anticipates that the remediation and cooperation of Falcon Labs will motivate additional intermediaries of non-compliant digital assets to disclose their activities.
Meanwhile, Falcon Labs grossed $1,179,008 in net fees from clients engaged in digital asset derivative transactions from October 2021 to March 2023.
Falcon Labs voluntarily enhanced its customer location determination controls in retaliation for the CFTC’s complaint against Binance and other affiliated entities for similar grounds.
Furthermore, this proactive measure was considered in determining the reduced monetary penalty.
