New York Attorney General Launches Fact-Finding Mission into Virtual Currency Exchanges; Exchanges Divided on Response

By Jeremy McLaughlin and Dan Cohen

The Investor Protection Bureau of the New York Office of the Attorney General (Bureau) has established the “Virtual Markets Integrity Initiative,” which the Bureau describes as a “fact-finding inquiry into the policies and practices” of virtual currency exchanges.  The Bureau launched the initiative “to increase transparency and accountability in the virtual currency marketplace—and better inform the actions of enforcement agencies, investors, and consumers in this space.”

As the Initiative’s first act, the Bureau sent a questionnaire to 13 virtual currency exchanges, asking for information about 6 topics—topics the Bureau describes as “fundamental aspects of [the exchanges’] operations or issues that have already attracted significant public attention”:

  1. Ownership and control;
  2. Operational procedures and fees;
  3. Trading policies and procedures;
  4. Outages and suspensions of trading;
  5. Internal controls; and
  6. Policies regarding privacy and money laundering

The Bureau issued the questionnaire because it wants to help provide “average investors” with information “sophisticated investors” often receive before they begin trading on a platform. The Bureau is also interested in learning, among other things, how these exchanges address market manipulation; how they report suspicious activity; their fee structures; and how they protect consumers’ funds.  In addition, the Bureau asked recipients to provide written copies of their terms, conditions, and representations to consumers, as well as their written rules and procedures regarding cyber security, privacy, and money laundering, among other policies.

The exchanges are not compelled to answer.  However, the letter explained that the Bureau “will review and assess [their] responses, compare them with those of other platforms, and disclose certain information in a publicly accessible format. As part of this disclosure, [the Bureau] will identify any platforms that decline to provide meaningfully complete responses.”

At least four exchanges (Gemini, Bittrex, Circle, and Bitfinex) have stated that they will respond to inquiry. While these exchanges received the request positively, Kraken did not; it has announced that it will not answer the Bureau’s questionnaire, and criticizing the Bureau for issuing the request.

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