- The CFTC fined a forecast market of $ 1.4 million for failing to register as a binary options provider.
- The regulator also ordered that its forecast markets be closed, and that the firm reimburse all its users before January 24.
The Commodity Futures Trading Commission (CFTC) has fined Polymarket crypto betting service $ 1.4 million for violating long-established regulations. The regulator of derivatives markets also ordered to close its forecast markets, as well as make repayments to users. The CFTC announced these sanctions on Monday, saying they are being implemented since the company did not register with the regulator.
Specifically, Polymarket did not apply for registration as a Designated Contract Market (DCM) or Swap Execution Service (SEF). These are required under the Commodity Exchange (CEA) Act for companies offering binary options in the United States.
Polymarket is a cryptocurrency prediction service owned by Blockratize, Inc. The platform allows users to select at least one of two options in certain operations. An example is the winner of a presidential election between nominees.
Polymarket penalties for breach of CEA
According to the CFTC, Polymarket has offered 900 such forecast markets between June 2020 to date. The regulator also notes that these markets are swaps and therefore subject to federal law.
According to the watchdog’s press release, Polymarket cooperated with the investigation, resulting in a reduced fine. The company must stop offering deals before January 14 and reimburse all its users before January 24, as per the order. The company is also required to retire and further breaches of CEA. At the moment, it does not seem likely to close.
In a statement, Acting Chief Enforcement Officer Vincent McGonagle said:
All derivatives markets must operate within the limits of the law, regardless of the technology used, and especially those related to the so – called decentralized financial space or ‘DeFi’.
DeFi derivatives markets are dominated by the CFTC
In particular, Bloomberg reported that, in October 2021, Polymarket was under investigation. Earlier in June 2021, Dan Berkovitz, now a former CFTC commissioner, said DeFi derivatives markets are under the jurisdiction of his agency, he said.
“There are no exceptions registered in the CEA for digital currencies, blockchain or smart contracts,” he said.
Polymarket announced on its official Twitter that it has reached an agreement with the CFTC. Three of its non – CEA compliant markets will be liquidated. In addition, all funds will be made available to users before January 14th. Polymarket hopes to provide more information about this soon.
“We have learned a lot from this experience and have built an exceptional compliance team and strong internal practices and procedures, which will ensure that compliance remains a key pillar of Polymarket’s ongoing global business,” the statement said.