According to a CFTC statement on Sept. 28, Kraken allowed U.S. customers to access products that were supposed to be prohibited for them.
The order requires Kraken to pay a $1.25 million civil monetary penalty and to “cease and desist from further violations of the Commodity Exchange Act.”
The exchange, founded in 2011, allowed its U.S. customers to trade with margin products between June 2020 and July 2021. It was also accused of failing to register as a futures commission merchant (FCM).
CFTC acting enforcement director, Vincent McGonagle, said that to offer such products, the company must register with regulators.
“Margined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations,”
He added that the action is part of the CFTC’s broader effort to protect U.S. customers. Margined retail commodity transactions in digital assets are frowned upon by regulators due to the amplified risks of liquidation.
Kraken served as the sole margin provider and had custody of all assets purchased using margin for the duration of the customer’s open margined position, the order stated.
It added that traders could not withdraw assets on margin for 28 days as Kraken held on to them. Additionally, the exchange could “initiate a forced liquidation if the value of the collateral dipped below a certain threshold percentage of the total outstanding margin.” It’s also worth noting that the limit pertains only to US residents winding up their positions before the system closes it. In all other cases, users can withdraw collateral when their position has been closed.
Kraken settled the CFTC’s claims without admitting or denying them, and the agency noted the firm’s cooperation. In a statement, Kraken said it was committed to working with regulators to ensure rules for crypto assets create a level-playing field for traders globally.
In April this year, Kraken CEO Jesse Powell warned that the crypto industry would likely be subject to heavier regulations in the U.S.
Speaking to CNBC at the time regarding regulation, he said, “I hope that the U.S. and international regulators don’t take too much of a narrow view on this. Some other countries, China especially, are taking crypto very seriously and taking a very long-term view.”
In May, Kraken was ordered by a Californian court to provide information to the Internal Revenue Service on users who executed crypto trades for $20,000 or more between 2016 and 2020.
