ALBANY, N.Y.—New York Attorney General Eric T. Schneiderman has launched the Virtual Markets Integrity Initiative, a fact-finding inquiry into the policies and practices of platforms used by consumers to trade virtual or cryptocurrencies like Bitcoin and Ether.
As part of a broader effort to protect cryptocurrency investors and consumers, the Attorney General’s office sent letters to thirteen major virtual currency trading platforms requesting key information on their operations, internal controls, and safeguards to protect customer assets. As the letters explain, the Initiative seeks to increase transparency and accountability as it relates to the platforms retail investors rely on to trade virtual currency, and better inform enforcement agencies, investors, and consumers, the AG’s office stated in a release.
“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,” said Schneiderman in a statement. “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.”
“Virtual or cryptocurrency trading platforms match buyers and sellers of virtual currencies. Sometimes referred to as ‘exchanges,’ these platforms are a key point of entry into the virtual currency market for professional and retail investors alike. They serve as repositories for sensitive personal information and custodians of vast sums of virtual and government-issued currency,” the AG’s office stated.
“Ensuring that enforcement agencies, investors, and consumers have the information they need to understand the practices and the risks on these platforms is critical, given reports of the theft of vast sums of virtual currency from customer accounts, sudden and poorly explained trading outages, possible market manipulation, and difficulties when withdrawing funds from accounts,” the AG’s office continued. “Often, the platforms lack the basic market protections of traditional investing platforms. Moreover, the extent of disclosures to customers about trading rules, internal controls, and other basic practices varies from platform-to-platform, making it difficult or impossible for prospective users to evaluate the actual risks of trading on a particular platform.”
The Initiative stems from the Attorney General’s “duty to protect consumers and ensure the fairness and integrity of the financial markets,” the AG’s office said.
Before trading on a new platform, sophisticated investors routinely demand robust disclosures, allowing them to assess the platform’s operations and the adequacy of its policies and internal controls. The questionnaire delivered to the virtual currency platforms asks for similar information so that average investors can better understand the risks and protections, the AG’s office explained.
The questionnaires ask the platforms to disclose information falling within six major topic areas, including (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. Among other areas of interest, the questionnaires request that platforms describe their approach to combating suspicious trading and market manipulation; their policies on the operation of bots; their limitations on the use of and access to non-public trading information; and the safeguards they have in place to protect customer funds from theft, fraud, and other risks.
The Attorney General’s office said it will analyze the responses, compare them across platforms, and at the conclusion of this process, present what it learned to the public.
The Investor Protection Bureau of the Office of the Attorney General sent letters to the following virtual currency trading platforms: Coinbase, Inc.; Gemini Trust Company; bitFlyer USA, Inc.; iFinex Inc.; Bitstamp USA Inc.; Payward, Inc.; Bittrex, Inc.; Circle Internet Financial Limited; Binance Limited; Elite Way Developments LLP; Gate Technology Incorporated; itBit Trust Company; and Huobi Global Limited.