According to a CFTC statement on September 28, Kraken has allowed US customers to access products that were supposed to be off-limits to them.
It requires Kraken to pay a $1.25 million civil fine and “to cease and desist from further violations of the Commodity Exchange Act.”
The exchange, which was established in 2011, allowed its US clients to trade margin products between June 2020 and July 2021. It was also accused of failing to register as a futures commission trader (FCM).
No margin for Americans
To offer such products, the company must register with regulators, Vincent McGonagall, acting director of law enforcement at the CFTC, said.
“Marginal, leveraged or funded digital assets offered to US retail clients must be traded on properly registered and regulated exchanges in accordance with all applicable laws and regulations,”
He added that the measure is part of the CFTC’s broader effort to protect US customers. Marginal retail commodity transactions in digital assets are frowned upon by regulators due to the amplification of liquidation risk.
Kraken acted as the sole margin provider and held all assets purchased using margin for the duration of the client’s open margin position, the order said.
It added that traders were unable to withdraw the assets on margin for 28 days as they were held by Kraken. In addition, the exchange can “initiate a forced liquidation if the value of the security falls below a certain threshold percentage of the total margin outstanding.”
Kraken settled the CFTC’s claims without acknowledging or denying it, and the agency indicated the company’s cooperation. In a statement, Kraken said it is committed to working with regulators to ensure that the rules for crypto assets create a level playing field for traders globally.
Regulations Warning
In April of this year, Kraken CEO Jesse Powell warned that the cryptocurrency industry would likely be subject to tougher regulations in the United States.
Speaking to CNBC at the time about the regulation, he said, “I hope that US and international regulators will not take too much of a narrow view on this. Some other countries, China in particular, are taking cryptocurrencies seriously and taking a long-term view.”
In May, a California court ordered Kraken to provide information to the Internal Revenue Service about users who made crypto trades for $20,000 or more between 2016 and 2020.
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