The Wall Street Journal reports that the New York attorney general's office has some strong opinions when it comes to digital currency exchanges. The office issued a report this week which criticizes many (though not all) exchanges for lacking basic consumer protections. The report suggests that many platforms are susceptible to exploitation by manipulators looking to game the system, a situation which could put consumers at risk as a result of a lack of appropriate safeguards.
Concerns About Fairness and Security
New York Attorney General Barbara Underwood issued a statement indicating that "many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges," according to the Journal. The report was the result of an investigation carried out over several months. The investigation was related to the Virtual Markets Integrity Initiative program, launched in April of 2018 by former state Attorney General Eric Schneiderman. This program sought information from several exchanges regarding their operations; 10 exchanges complied with requests, while 4 others did not, arguing that they did not operate in New York state.
Possibility of Unlawful Operation
The attorney general's office referred three exchanges to the New York Department of Financial Services on the grounds that they may be operating illegally in the state. These three exchanges--Kraken, Gate.io and Binance--were among the group of exchanges which had argued that they did not operate in New York. The Journal reported that these three exchanges could not be immediately reached for comment.
The disconnect between the argument that these exchanges are operating illegally in New York and the claim that the exchanges do not operate in New York at all highlights the complexity of the digital asset world when it comes to regulation. Cryptocurrency exchanges, like the tokens and coins themselves, are designed in many ways to be separate from traditional monetary systems. Pinpointing how these exchanges fit within the legal apparatuses of varied jurisdictions is an ongoing concern for many regulators and cryptocurrency enthusiasts alike.
Beyond the issue of legality of exchange operations, the report highlights the looming concern of market integrity. Both the U.S. Justice Department and the U.S. Commodity Futures Trading Commission are investigating the possibility of market manipulation in the cryptocurrency space.
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