The U.S. Commodity Futures Trading Commission (CFTC) has fined Hong Kong-based bitcoin exchange, Bitfinex for the provision of illegal off-exchange financed retail commodity transactions in bitcoin and other cryptocurrencies. According to the U.S. regulator, the company should have been registered as a Futures Commission Merchant (FCM) in order to provide its services in the U.S.
The fine amounts to $75,000 with Bitfinex agreeing to cease and desist from future violations of the Commodities Exchange Act.
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Bitfinex has been allowing its clients to borrow funds from other peers and engage in leveraged transactions. The violations have been ongoing between April 2013 to at least February 2016. According to the CFTC’s order, Bitfinex did not actually deliver bitcoins to the traders who purchased them. The company was holding them on its own wallets instead.
The decision of the CFTC is yet another example of the far reaching arm of the Dodd-Frank Act which is heavily regulating financed commodity transactions. Transactions involving cryptocurrencies such as Bitcoin must be conducted on an exchange, unless the entity that is offering the transactions can ensure that an actual delivery of the cryptocurrency units is made within 28 days.
In order for Bitfinex to have been able to accept trading orders and receive funds in related to retail commodity transactions, the exchange would have to be registered as a Futures Commission Merchant with the CFTC. When issuing the order, the U.S. regulator has recognized that Bitfinex has been cooperating and voluntarily made a list of changes to its business in order to comply with the U.S. Commodity Exchange Act.