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US Attorney General Believes Three Crypto Exchanges May Be Acting Illegally

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In a report published yesterday from the office of the US Attorney General, it was announced that major crypto exchanges Binance, Kraken and Gate.io have been referred to the New York Department of Financial Services, under suspicion that they may have been in breach of regulations that cover digital currencies in the country.

The report follows an announcement in April this year, when the US AG Barbara Underwood requested detailed operational information from thirteen crypto exchanges – although four of these, including Kraken, declined to comply with the request. In a tweet at the time, Kraken CEO publicly denounced the request for information from the office, saying: “The AG’s tone-deaf response shows just how bad the disconnect really is. Not only are they apparently experts in what legitimate businesses desire, they are also experts in what’s important to consumers”.

The main focus of the report was on potential proprietary trading, a lack of safeguarding of funds and potential conflicts of interest. The ultimate conclusion, though, served as a reminder to potential exchange users, that they should choose carefully and check that they fully understand the workings of their chosen platform, with eight questions (see below):

1. What security measures are in place to stop hackers from unlawfully accessing the platform or particular customer accounts?

2. What insurance or other policies are in place to make customers whole in event of a theft of virtual or fiat currency?

3. What guardrails or other policies does the platform maintain to ensure fairness for retail investors in trading against professionals?

4. What controls does the platform maintain to keep unauthorized or abusive traders off the venue?

5. What policies are in place to prevent the company and its employees from exploiting non-public information to benefit themselves at the expense of customers?

6. How does the platform notify customers of a site outage or suspension, the terms under which trading will resume, and how customers can access funds during an outage?

7. What steps does the platform take to promote transparency and to subject its security, its virtual and fiat accounts, and its controls to independent auditing or verification?

8. Is the platform subject to, and registered under, banking regulations or a similar regime – for instance, the New York BitLicense regulations?

Among the exchanges thought to be proprietary trading – according to the report – are Coinbase, Bitfinex, bitFlyer, Poloniex and Tidex. The concern raised in the report was “such high levels of proprietary trading raise serious questions about the risks customers face on those platforms. As a general principle, when a significant percentage of the volume in one or more assets on a venue is attributable to one source, customers face the risk that the availability of liquidity in those assets could change, without notice and at any time.”

Image Credit: Deposit Photos

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