Crypto Exchange Kraken Fined $1.3M For Offering Illegal Products

Hammer on Bitcoin

Kraken, a popular cryptocurrency exchange, has been fined by the US Commodity Futures Trading Commission (CFTC) after settling a case of offering crypto-based margin trading products without duly registering with the commission, thus making it illegal. 

The CFTC brought a lawsuit against Kraken, accusing it of offering margined crypto products between June 2020 and June 2021 without getting the appropriate license(s) required to do so in the US. The required licenses are a Designated Contract Market (DCM) license and/or a Futures Commission Merchant (FCM) license.

  • Kraken has agreed to pay a fine of $1.25mn to settle the case and cease and desist from further violations of the Commodities Exchange Act as charged. The crypto exchange has to stop offering margin products or get the due license(s) if it desires to continue offering them.
  • To the uninitiated, margin trading refers to trading with debt provided by a third party, in this case, Kraken. Kraken allowed US residents signed up on its platform to trade cryptocurrencies with debt up to a ratio of 5:1, the CFTC said. The exchange itself issued the trading loans and maintained custody of the assets bought with them for the duration of a customer’s opened margin position (i.e., before repayment of liquidation).
Kraken’s case speaks of broader issues that crypto exchanges are having with American regulators. Initially a “wild wild west,” the crypto market is gradually falling under regulation driven by centralized exchanges like Kraken that want to maintain their business by complying with the law.

As the crypto markets gradually fall under regulation in the US, it’s apparent that past practices of crypto exchanges have come back to haunt them, like in Kraken’s case. It’s not just Kraken; another major crypto exchange, BitMex, was recently fined $100mn by the CFTC for not complying with anti-money laundering and know-your-customer laws.
  • With the settlement including an agreement to refrain from offering margin trading or get the required license, Kraken has no choice but to take the latter path if it wants to keep offering it to US customers. That latter path will likely come with headwinds as there’s no set of clear rules from the CFTC right now governing crypto exchanges offering margin trading.


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