FalconX
will
pay
$1.8
million
to
settle
newly-announced
charges
from
the
Commodity
Futures
Trading
Commission
(CFTC)
that
the
crypto
trading
firm
violated
commodities
laws
by
failing
to
register
as
a
futures
commission
merchant
(FCM),
according
to
a
Monday
announcement
from
the
regulator.
Through
its
“Edge”
product,
FalconX
acted
as
a
crypto
prime
broker,
offering
institutional
clients
–
including
some
based
in
the
U.S.
–
with
access
to
various
crypto
exchanges
to
trade
derivatives,
including
futures
and
swaps,
the
CFTC
said
in
a
press
release
Monday.
Though
FalconX
describes
itself
as
the
“largest
digital
asset
prime
brokerage”
it
was
not
properly
registered
with
the
CFTC.
One
of
FalconX’s
portfolio
companies,
FalconX
Bravo,
has
been
registered
with
the
CFTC
as
a
swap
dealer
since
last
August,
according
to
the
Monday
settlement
agreement.
The
way
in
which
FalconX
conducted
business
for
its
institutional
clients
meant
that
accurate
know-your-customer
(KYC)
information
was
often
not
provided
to
the
crypto
exchanges
FalconX
was
trading
with.
However,
after
the
CFTC
filed
suit
against
Binance
its
former
CEO,
Changpeng
“CZ”
Zhao
for
similar
offenses
in
March
2023,
FalconX
voluntarily
“changed
and
enhanced
its
approach
to
collecting
customer-identifying
information”
–
including
requiring
customers
to
identify
the
location
of
the
assets’
ultimate
beneficial
owners,
the
location
of
their
corporate
headquarters,
and
the
location
of
employees
controlling
the
investor’s
Edge
account.
After
these
new,
stricter
KYC
requirements
were
put
in
place,
FalconX
told
the
CFTC
that
Edge
lost
half
of
its
customers.
In
its
settlement
agreement,
the
CFTC
said
that
FalconX’s
remediation
efforts
–
as
well
as
its
“substantial
cooperation”
with
the
investigation
–
resulted
in
a
lower
penalty
than
could
have
otherwise
been
imposed.
FalconX
must
pay
$1,179,008
in
disgorgement
and
a
$589,504
civil
penalty,
and
must
cease
and
desist
from
acting
as
an
unregistered
FCM.
FalconX
did
not
respond
to
CoinDesk’s
request
for
comment
by
press
time.