NY Attorney General: Cryptocurrency exchanges lack security and integrity

Lloyd Doyle
September 20, 2018

On Tuesday, as relayed by Bloomberg, Barbara Underwood, New York State's Attorney General, unexpectedly released a report that highlighted her office's thoughts on crypto exchanges.

In the aforementioned report, Underwood claimed that Binance, Kraken, Gate.io, three leading platforms in the cryptosphere, could be in violation of a series of cryptocurrency-focused regulations and rules, and as such, they should be referred to the New York Department of Financial Services (NYDFS).

This idea for this report was sparked back in April 2018, when the Attorney General's office sent out requests for information to 13 "major" virtual currency trading platforms in a bid to garner more information about their "operations, internal controls, and safeguards to protect customer assets". According to the well-established regulator, a minimum of three crypto exchanges can be facilitating operations that would be classified as illegal in the state of NY, which has become notorious for its heavy-handed regulatory moves. Ten exchanges complied with requests for information and four did not, arguing they didn't operate in the state.

"New Yorkers deserve basic transparency and accountability when they invest - whether on the New York Stock Exchange or on a cryptocurrency platform", Underwood said in a statement .

Kraken, the only one of the four based in the US, was the most vociferous in its refusal to respond to the inquiry, calling the initial request "ill-prepared" and "an overly broad fishing expedition that asks questions irrelevant to the stated objective and misses obvious questions that actually would be helpful". In thinly traded markets, it becomes very easy for so-called "whales" or large holders to move the price of bitcoin, or any cryptocurrency, in whatever directly they want. Neither of the three exchanges has commented on the news yet. The process carried forward in spite of the refusal to participate from some exchanges as well as then-Attorney General Eric Schneiderman's resignation in May.


"Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns", the report said. The report notes that the platforms that refused to respond are based outside of the USA and may not disclose all order types offered to certain traders, labeling Kraken's rejection of initiative participation as "alarming".

First, exchanges dabble in several lines of business that would normally be carefully monitored in a traditional trading environment. Some exchanges also allow their own employees to hold and trade on their own or competing platforms.

It would seem that standardized methods for auditing virtual assets do not exist.

The report also noted that while most exchanges use know-your-customer procedures, Bitfinex and Tidex do not, "requiring little more than an email address to begin trading virtual currencies".

"Customers would do well to avoid platforms that can not satisfactorily answer the question posed in this report", it said.

Other reports by Iphone Fresh

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