By Shelly Melancon (Switzerland)
The Commodity Futures Trading Commission has fined Kraken $1.25M concerning violating commodity transactions. The CFTC found the crypto exchange guilty of dealing in margin retail commodities in cryptocurrency.
In a statement released by the CFTC on Tuesday, Kraken was declared guilty of failure to register as a merchant and unlawfully transacting retail commodities in cryptocurrencies. Therefore, the digital asset platform was ordered to pay a fine and desist from the transgression of the Commodity Exchange Act.
Leveraged Crypto Trading Must Adhere to Applicable Laws
According to CFTC Enforcement Acting Director Vincent McGonagle, the decision to penalize Kraken is part of the agency’s effort to safeguard customers in the United States. The director added that margin or leveraged crypto trading offered to U.S. customers must adhere to applicable laws and execute the transactions on a correctly registered exchange.
The case against Kraken further reveals that the exchange platform offered commodity trading in BTC and other cryptos to ineligible customers in the United States, starting from June 2020 – July 2021. Although Kraken changed its margin trading policy, it wasn’t until June this year that its customers were required to close their positions within 28 days. The commission asserts that this action only implied that the company involved itself in transacting commodities in virtual assets illegally since they didn’t happen on a central contract market.
The CFTC alleges that Kraken could have closed the margin positions forcefully and liquidated customers’ assets if they didn’t act within the given 28 days. In addition, the exchange firm could have forced a liquidation if the collateral’s value fell below a range percentage of the outstanding margin.
The penalty is somewhat insignificant compared to a company like Kraken that’s valued at $10B. That means the monetary fine account for just 0.0125% of its valuation.
Commissioner Labels CFTC’s Actions as “Aggressive”
Dan Berkovitz of the CFTC described the agency’s actions in the crypto world as “aggressive,” but reiterated that the commission wasn’t looking for more power without additional resources. The current commissioner will assume the position of general counsel of the SEC in October, with Kristin Johnson and Christy Goldsmith possible replacements.
It isn’t the first time the CFTC is penalizing a crypto platform for violations. In August, the CFTC had penalized BitMEX to pay $100M to FinCEN for anti-money laundering violations and allegedly operating a crypto trading venture.
The security agency maintained that BitMEX didn’t provide enough safeguards to prevent money laundering activities. In addition, it failed to report the suspicious activity happening on the platform to the regulatory agency from 2014 to 2020. The exchange has enhanced its KYC capabilities and shored up its anti-money laundering (AML) protocols.
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