Kraken to pay $1.25 million fine for offering illegal Bitcoin products

Kraken is set to pay a fine of $1.25 million for allowing U.S. residents to carry out transactions that are considered illegal. According to a statement made by the Commodity Futures Trading Commission (CFTC) on Tuesday, while the cryptocurrency exchange failed to register as a futures merchant, it also allowed U.S. traders to trade margin products linked to Bitcoin and other cryptos illegally, from around June 2020 till July 2021.

The United States CFTC has now ordered the exchange to pay a sum of $1.25 million as penalty feed for the past shortcomings, and then immediately cease from violating the Commodity Exchange Act any further.

Speaking about the action of the CFTC, acting director of enforcement, Vincent McGonagle, says it’s all part of the commission’s goal of protecting US residents. He was also quick to mention again, that all margins must now take place on well registered and regulated exchanges, and in accordance with all relevant laws and strict regulations.

Going by the case that CFTC has established against Kraken, the commission says that Kraken has long been offering commodity margin trading to ineligible U.S. residents since as far back as June 2020 and just recently stopped doing so in July 2021.  Kraken may now have changed its policy on margin trading though, but its users were made to either close position, or given 28 days to settle their positions. According to CFTC, all of the transactions at the time did not exactly happen in a designated contract market, thus making the operations illegal.

Also, for whatever reasons that a repayment is not made within the given 28 days, Kraken holds the power to unilaterally force the liquidation of such a margin position, says the CFTC .

For whatever it’s worth though, the enforcement action on Kraken is undoubtedly quite small and a bit  questionable. In a sharp contrast to the $1.25 million that CFTC is asking of Kraken, the same commission worked together with Financial Crimes Enforcement Network to fine BitMEX  a whopping $100 million in August.

Source: Bloomberg