Cryptocurrency trading platform cited for compliance failures

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The Commodity Futures Trading Commission (CFTC) recently announced that the U.S. District Court for the Southern District of New York issued consent orders against three co-founders of a cryptocurrency derivatives trading platform for $30 million in personal civil monetary penalties. This is not the first time the platform has been mentioned.

The court ruling underscores the importance of regulatory compliance for founders of fintech companies – and highlights how personally responsible they are for ensuring that US operations are undertaken with careful consideration of regulatory regimes and requirements compliance. These responsibilities include implementing procedures to identify U.S. persons using financial services, products, and platforms.

The $30 million in civil fines to be paid by the three co-founders stems from the platform running significant aspects of the business from the US and accepting orders and funds from US customers to trade crypto -currencies and derivatives through unregistered entities and without complying with applicable customers. identification, tracing, regulatory compliance and consumer protection requirements.

The personal liability of the three co-founders stems from violations of the Commodity Exchange Act (CEA) platform by operating as a futures merchant (FCM) without CFTC registration and failing to implement a customer information program ( CIP) and Know Your Customer (KYC) which would identify US persons using the platform. Other failures included a combination of violations of Financial Crimes Enforcement Network (FinCEN) and CFTC rules that require the implementation of an adequate anti-money laundering (AML) program and a customer identification.

These personal civil penalties imposed on the founders of the platform underscore the paramount importance of regulatory analysis when offering digital asset, cryptocurrency and virtual currency services. The trading platform was not only cited for its unregistered derivatives products, but also for its failure to implement a proper BSA/AML program for related remittance activities. The implementation of competing sanctions and findings between the CFTC and FinCEN highlights the complex framework of regulatory requirements for digital assets and fintech products.

The May consent orders relate to a 2021 CFTC consent order for the company’s unregistered operation of the trading platform in violation of CEA and CFTC regulations, and a concurrent FinCEN enforcement action for violation of the Bank Secrecy Act (BSA) and FinCEN regulations. The 2021 fines totaled over $100 million in civil monetary penalties to be paid by the trading platform itself.

Gretchen Lowe, Acting Director of Enforcement at the CFTC, said that “persons who monitor cryptocurrency derivatives trading platforms operating in the United States must ensure that their platform form complies with applicable federal commodity laws, including CFTC registration and regulatory requirements such as Know-Your-Customer and Anti-Money Laundering Regulations.

Regulators are taking a granular approach to dealing with money laundering and terrorist financing issues and, as FinCEN Deputy Director AnnaLou Tirol commented in 2021, “it is essential that platforms integrate financial integrity from the start, so that innovation and financial opportunities are protected from vulnerabilities. and exploitation.

These orders highlight the high price that founders can pay when they fail to meet their regulatory obligations by allowing unlicensed activity and uncontrolled persons on their platforms. Fintech founders should be careful to weigh this recent announcement to ensure they are meeting their regulatory obligations in their US operations.

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