FalconX, a cryptocurrency trading firm, has agreed to pay $1.8 million in penalties to resolve charges from the Commodity Futures Trading Commission (CFTC). The charges, announced on Monday, allege that FalconX operated without proper registration as a futures commission merchant (FCM), which is required for firms offering futures and swaps trading services.
Details of the Settlement
The CFTC’s announcement highlighted that through its “Edge” product, FalconX served as a crypto prime broker, facilitating access to various crypto exchanges for institutional clients, including those in the U.S., to trade derivatives such as futures and swaps. Despite describing itself as the “largest digital asset prime brokerage,” FalconX failed to register as an FCM, a misstep uncovered during the regulatory scrutiny.
It’s noteworthy that FalconX Bravo, a portfolio company of FalconX, has been registered as a swap dealer with the CFTC since the previous August, according to the settlement terms.
Enhanced Compliance Measures
Following a similar legal action against Binance and its former CEO Changpeng “CZ” Zhao in March 2023, FalconX proactively revised its approach to collecting know-your-customer (KYC) information. The updated requirements included more stringent measures to verify the identity of the beneficial owners of the assets, the location of the corporate headquarters, and the whereabouts of the employees managing the Edge accounts.
These tighter KYC protocols, however, led to FalconX losing half of its Edge customer base, as disclosed to the CFTC.
Also Read: FalconX Introduces Prime Brokerage Services for Institutional Crypto Trading
Settlement Terms
In recognition of FalconX’s remediation efforts and substantial cooperation with the investigation, the CFTC imposed a reduced penalty. The settlement includes $1,179,008 in disgorgement and a $589,504 civil penalty. Additionally, FalconX is required to cease operations as an unregistered FCM.
As of the latest updates, FalconX has not yet responded to inquiries for comments on the settlement.
