New York Attorney General Eric Schneiderman has launched a fact-finding inquiry into the practices and policies of crypto exchanges.
While launching the Virtual Markets Integrity initiative, Schneiderman stated that a majority of cryptocurrency investors do not have access to “basic facts” about the operation of a cryptocurrency exchange.
In an attempt to safeguard interests of consumers, the attorney general’s office has sent letters to 13 major cryptocurrency exchanges, asking them to provide insights on their operation, including internal controls and safeguards used to protect investors holdings.
The primary aim of this initiative is to increase accountability and transparency of cryptocurrency exchanges. By gaining better knowledge about the operations of cryptocurrency exchanges, the attorney’s office believes that it will be in a better position to inform enforcement agencies, investors, and consumers.
Exchanges facilitate entry into the world of virtual currencies and serve as repositories for invaluable personal information. Cryptocurrency exchanges also act as custodians of vast sums of digital and fiat currencies. Quite often we hear of reports of hacking, unexplained or poorly explained outages, and difficulties in withdrawing funds at the will of a user. Additionally, there are also reports of market manipulation by big players, referred to as whales. So, there is a real need for the enforcement agencies, investors and consumers to have all the requisite information regarding the operations and practices of cryptocurrency exchanges.
A majority of the crypto exchanges lack the protection facilities offered by traditional investing platforms. Therefore, enforcement agencies, investors, and consumers must have a clear idea of the risk involved while dealing with the platform. The letter also highlights that trading rules, internal controls and other basic norms vary from one cryptocurrency exchange to another. This makes risk assessment a complex process.
It is but normal for a high networth investor to pose questions regarding the operations of an exchange in order to assess risk clearly. However, retail investors hardly have such options. As it is the duty of the Attorney General to protect consumers and ensure fairness and integrity of the financial markets, a questionnaire has been sent to all the major exchanges to collect the much needed information, which could prove to be an eye opener for an ordinary retail investor.
The questions raised in the letter falls mostly within six major topic areas
(1) Ownership and Control
(2) Basic Operation and Fees
(3) Trading Policies and Procedures
(4) Outages and Other Suspensions of Trading
(5) Internal Controls, and
(6) Privacy and Money Laundering.
The Attorney General’s letter has requested as much information as possible.
The questionnaire has also requested the cryptocurrency exchanges to explain their approach to prevent suspicious trading and market manipulation, limitations on the use of and access to non-public trading information, policies on the operation of bots and the safeguards they have in place to protect customer funds from theft, fraud, and other risks.
The Attorney General’s office will analyze the responses, compare them across platforms, and at the conclusion of this process, present what it learned to the public.
The list of exchanges, which have been sent the fact-finding letter by the Investor Protection Bureau of the Office of the Attorney General are as follows:
(1) Coinbase, Inc. (GDAX)
(2) Gemini Trust Company
(3) BitFlyer USA, Inc.
(4) iFinex Inc. (Bitfinex)
(5) Bitstamp USA Inc.
(6) Payward, Inc. (Kraken)
(7) Bittrex, Inc.
(8) Circle Internet Financial Limited (Poloniex LLC)
(9) Binance Limited
(10) Elite Way Developments LLP (Tidex.com)
(11) Gate Technology Incorporated (Gate.io)
(12) itBit Trust Company and
(13) Huobi Global Limited (Huobi.Pro).
Attorney General Schneiderman said
“With cryptocurrency on the rise, consumers in New York and across the country have a right to transparency and accountability when they invest their money. Yet too often, consumers don’t have the basic facts they need to assess the fairness, integrity, and security of these trading platforms. Our Virtual Markets Integrity Initiative sets out to change that, promoting the accountability and transparency in the virtual currency marketplace that investors and consumers deserve.”