Falcon Labs Settles With CFTC for $1.8 Million

Reading Time: 2 minutes
  • The Commodity Futures Trading Commission has settled charges with Falcon Labs Ltd. for operating as an unregistered Futures Commission Merchant
  • Falcon Labs solicited and accepted US orders for futures and swaps through its FalconX platform without proper registration from October 2021 to March 2023
  • The firm has agreed to pay a $1.8 million settlement due to violations of the Commodity Exchange Act

The Commodity Futures Trading Commission (CFTC) has settled charges against Falcon Labs Ltd., a digital asset brokerage firm, for acting as an unregistered Futures Commission Merchant (FCM). From October 2021 to March 2023, Falcon Labs was involved in soliciting and accepting US orders for digital asset futures and swaps without proper registration, a violation under the Commodity Exchange Act. The company has agreed to pay a $1.8 million settlement as a result of the action.

Falcon Labs Didn’t Register FalconX

Falcon Labs, operating under the brand “FalconX,” is known as the “largest digital asset prime brokerage” and is based in Seychelles. The CFTC’s investigation revealed that Falcon Labs allowed its US-based customers to trade derivatives directly on various digital asset exchanges without providing necessary customer identification information. This activity breached regulatory requirements as firms functioning as FCMs must register with the CFTC.

In a recent enforcement action linked to similar violations by other platforms, notably the “Binance Action,” Falcon Labs opted to enhance its compliance measures. This included improved customer identification and due diligence, particularly concerning the verification of U.S. connections among its customers. As a result, approximately half of Falcon Labs’ customers were off-boarded due to non-compliance with the new stringent measures.

“Substantial Cooperation” Reduced Penalty

The settlement includes Falcon Labs agreeing to pay a civil monetary penalty of $589,504 and a disgorgement of $1,179,008 for fees collected during the period of non-compliance. This resolution reflects a reduced penalty acknowledging Falcon Labs’ substantial cooperation with the CFTC and its proactive measures in rectifying compliance shortfalls.

The firm’s settlement also mandates continuing adherence to enhanced practices to prevent future breaches. This case underscores the CFTC’s commitment to enforcing compliance within the digital asset trading space, ensuring that entities engaging U.S. customers in derivatives trading are properly registered and transparent.