The New York State Office of the Attorney General (OAG) has launched a new initiative designed to protect and inform customers of cryptocurrency exchanges. The move could serve as a precursor to increased regulation of the market and create a new opportunity for regtech providers.
Unlike traditional exchanges, virtual asset trading platforms in the US are currently not required to register under state or federal securities or commodities laws. Nor are they required to implement consistent standards for security, internal controls, market surveillance protocols, disclosures, or other investor and consumer protections.
The OAG warns: “Trading platforms have yet to implement serious efforts to impede abusive trading activity. Platforms lack robust real-time and historical market surveillance capabilities, like those found in traditional trading venues, to identify and stop suspicious trading patterns. There is no mechanism for analysing suspicious trading strategies across multiple platforms. Few platforms seriously restrict or even monitor the operation of ‘bots’ or automated algorithmic trading on their venue. Indeed, certain trading platforms deny any responsibility for stopping traders from artificially affecting prices. Those factors, coupled with the concentration of virtual currency in the hands of a relatively small number of major traders, leave the platforms highly susceptible to abuse.”
First announced in September 2018, the Virtual Markets Integrity Initiative is based on the principle that consumers and investors deserve to understand how their financial service providers operate. It requested the voluntary participation of 13 major virtual trading platforms in New York State, out of which nine responded, and addresses key policies and practices including customer sign-up, jurisdiction, fees, trading policies, market fairness, conflicts of interest, security, insurances, the protection of customer funds, and how to handle suspensions and outages.
“As the sector matures, the OAG expects responsible trading platforms – in coordination with consumer advocates, regulators, and law enforcement – to expand the transparency, security, fairness, and accountability of their businesses,” said the OAG.