CRIMINAL CRYPTO CAPITALI$M

CFTC fines crypto exchange Kraken $1.25 million for offering some products illegally

cshumba@insider.com (Camomile Shumba)

© Primakov Kraken Primakov

The CFTC ordered Kraken to pay $1.25 million for facilitating margined retail commodity transactions in digital assets.

The order also said the company failed to register as a futures commission merchant (FCM).

CFTC said Kraken offered this service to customers who were not eligible between June 2020 to July 2021.

The Commodity Futures Trading Commission (CFTC) on Tuesday ordered crypto exchange Kraken to pay $1.25 million in fines for offering some products illegally.

The commodities and foreign exchange regulator said Kraken had been fined for facilitating margined retail commodity transactions in digital assets including bitcoin to customers who were not eligible between June 2020 to July 2021.

The order also said the company failed to register as a futures commission merchant (FCM).

Kraken is one of the biggest cryptocurrency exchanges in the world. Exchanges have been penalized in the past for offering products that did not comply with existing regulations, for example.

"We appreciate that today's settlement acknowledges our cooperation and engagement on the issue. We are committed to working with regulators to try to ensure the rules governing digital assets create a level playing field globally -- one that allows the crypto space in the U.S. to flourish, while protecting the interests of individuals and the integrity of the industry," Kraken said in an emailed statement to Insider.

"As a firm committed to reasonable regulation, we engaged with the CFTC about its proposed margin trading guidance and sought clarity about what the guidance would permit. In June of this year, we started limiting our margin products in the US to eligible clients prior to entering into this settlement with the CFTC," the company said.

"This action is part of the CFTC's broader effort to protect US customers," Vincent McGonagle, acting director of enforcement, said in the CFTC order.

"Margined, leveraged or financed digital asset trading offered to retail US customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations," McGonagle said.

The CFTC regulates the US derivatives market, with commodities, foreign exchange, fixed income and some crypto assets also falling under its remit.

The regulator cited a case in which a customer purchased a digital asset using borrowed funds from the exchange, which then supplied the digital asset or currency to the seller, known as margin trading.

The CFTC said Kraken asked its customers to exit their positions and return the funds they received on margin within 28 days or face being unable to transfer them. In the absence of repayment, Kraken would request that position be liquidated, or liquidate forcibly, if the value of the collateral dipped below a certain threshold, which is common practice across exchanges.

"As a result, actual delivery of the purchased assets failed to occur. These transactions were unlawful because they were required to take place on a designated contract market and did not," the order said.