CFTC Commissioner Calls for Regulatory Clarity as the Agency Fines Kraken $1.25M for Illegal Derivatives Trading


Cryptocurrency exchange Kraken is paying a $1.25 million fine to settle with the US Commodity Futures Trading Commission (CFTC), which alleged that it let US-based customers illegally trade margin products linked to crypto assets.

According to the derivatives regulator, between June 2020 and July 2021, Kraken allowed its US users to transact in crypto derivatives without registering as a futures commodity merchant (FCM) with the regulatory agency. CFTC acting enforcement director, Vincent McGonagle, said,

“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.”

The crypto exchange settled CFTC’s claims without admitting or denying any wrongdoing.

The agency noted Kraken’s cooperation in accepting the settlement, saying the exchange was “proactive” in seeking compliance guidance. In response, Kraken said in a statement that it appreciates CFTC’s acknowledgment of its cooperation with the investigation.

The US-based crypto exchange said it is committed to working with regulators to “try to ensure the rules governing digital assets create a level playing field globally.”

CFTC Commissioner Dawn Stump, meanwhile, said in a statement that it might be difficult for the exchange to comply with the law due to the current guidance around issues like the “actual delivery” of crypto assets. She said in the statement,

“I believe that if the Commission is going to hold an exchange liable for operating as an unregistered FCM with respect to retail commodity transactions, it is incumbent upon the Commission to explain in a transparent manner the relevant legal requirements for such an entity that seeks to register as an FCM and how the Commission will apply them in enabling the entity to conduct business with U.S. customers.”

Not only is existing guidance not enough to establish clear rules for crypto firms, but she also said it is further unclear how Kraken can be regulated as an FCM as the current rules governing them do not fit Kraken’s role as an exchange.

Also, it would be “unprecedented” for a company to be registered as both an FCM and DCM, she said.

“Enforcement actions are usually bad news, but this seems quite positive. Kraken made a good deal & solved an open regulatory issue, CFTC got a win & asserted its authority, & Comm'r Stump wrote a good statement calling for clarity,” said Jake Chervinsky, a General Counsel at decentralized finance (DeFi) project Compound Finance.

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