FalconX Settles With CFTC

In addition to monetary penalties, FalconX must discontinue access to crypto derivatives trading platforms for customers in the United States

According to an announcement by the regulator on Monday, FalconX will pay $1.8 million to settle newly announced allegations brought by the Commodity Futures Trading Commission (CFTC).

The charges allege that the cryptocurrency trading company breached commodities rules by failing to register as a futures commission merchant (FCM).

FalconX served as a crypto prime broker through its “Edge” product, providing institutional clients, some of which were situated in the United States, with access to a variety of cryptocurrency exchanges for trading derivatives, such as futures and swaps, according to a news release issued by the Commodity Futures Trading Commission (CFTC) on Monday.

Although FalconX claims to be the “largest digital asset prime brokerage,” the company was not legally registered with the Commodity Futures Trading Commission (CFTC).

According to the settlement agreement that was reached on Monday, FalconX Bravo, which is one of the firms that FalconX has in its portfolio, has been registered with the Commodity Futures Trading Commission (CFTC) as a swap dealer since August of last year.

As a result of how FalconX conducted business with its institutional clients, the cryptocurrency exchanges with which FalconX was dealing frequently needed to get accurate know-your-customer (KYC) information.

However, after the Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance’s former CEO, Changpeng “CZ” Zhao, for similar offences in March 2023, FalconX voluntarily “changed and enhanced its approach to collecting customer-identifying information.”

This included requiring customers to identify the location of the assets’ ultimate beneficial owners, the location of their corporate headquarters, and the location of employees controlling the investor’s Edge account.

FalconX reported to the CFTC that Edge had lost fifty percent of its customer base due to implementing these new and more stringent KYC criteria.

The Consumer Financial Protection Bureau (CFTC) indicated in the settlement agreement that FalconX’s remedial efforts and “substantial cooperation” with the inquiry led to a penalty less severe than what could have been levied in any other circumstance.

In addition to paying a disgorgement of $1,179,008 and a civil penalty of $589,504, FalconX must stop and desist from working as an unregistered financial contract manager (FCM).