- The regulator claims Kraken accepted client trades and funds.
- Kraken was the sole margin provider and held all client assets physically.
The CFTC fined crypto exchange Kraken $1.25 million for illegally offering some products. Between June 2020 and July 2021, Kraken, fined for facilitating margined retail commodity transactions in digital assets. Including bitcoin, to non-eligible customers.
The company also failed to register as a futures commission merchant (FCM). Kraken is a global cryptocurrency exchange. Furthermore, exchanges have been penalized in the past for selling products that did not meet regulatory requirements.
The CFTC regulates the U.S. derivatives market and commodities, forex, fixed income, and some crypto assets. Moreover, according to the regulator, a client purchased a digital asset using borrowed money from the exchange, which then sold it to the seller.
Held All Clients Assets Physically
From June 2020 to July 2021, Payward Ventures Inc, doing business as Kraken, offered non-eligible U.S. customers, the CFTC said in a statement. Moreover, the firm also traded futures without registering with the agency. The regulator claims Kraken accepted client trades and funds. Thus acted as an ECP without registering with the CFTC.
Furthermore, the CFTC said Kraken required customers to exit positions and return margin funds within 28 days or risk having their funds frozen. In the absence of repayment, Kraken would request or force the liquidation of the position if the collateral value fell below a certain threshold.
Commissioner Dawn Stump concurred with the settlement, stating that existing agency guidance does not establish clear rules for cryptocurrency firms seeking to offer retail commodity transactions involving digital assets.