A fight has blown up concerning the future of crypto exchanges, and its impact will greatly reflect how the crypto space evolves. One side of the fight comprises of purists who strongly argue that the crypto exchanges- the on- and off-ramps surrounding the crypto space and traditional banking system- can and ought to be free from government regulations. The other side is spearheaded by state legislators electric with guarding investors against scams and frauds.
Last week the New York (NY) attorney general’s office gave a big blow in favour of those supporting government regulation in the crypto world, with a report that mirrors the spectral internal activities of ten major crypto exchanges.
The report is thought to mount pressure on the crypto exchanges to function with more transparency and better customer protection. Regardless of the side, you are supporting, that could greatly benefit the crypto world- at least if the mainstream implementation is the objective.
The Details of the Report
In April this year, the AG’s office requested 13 major crypto exchanges to fill a detailed questionnaire concerning various topics, from transaction charges to anti-money-laundering strategies to strategies for securing client assets.
Ten of then complied with the AG’s request and the newly released evaluation of their responses coats a dreary picture. In specific, the AG Barbara Underwood complained about the extensive lack of “necessary policies and procedures to ensure the fairness, integrity, and security” of exchanges.
The report hits crypto exchanges for missing “robust real-time and historical market surveillance capacities, like those found in traditional trading venues, to identify suspicious trading patterns.” The report further points out that conflicts of interest are common. It continues to point out issues concerning the crypto space’s lack of transparency regarding various things, like:
- Why crypto exchanges list some coins and exclude other
- Whether listing is chargeable
- Whether a certain exchange’s staff own any of its itemized coins.
Previous Crypto Regulation Attempts
This is not the first attempt of NY to shake up the crypto exchange industry. In 2015, it tabled the BitLicense bill, a unique licensing bill for cryptocurrency firms that strengthened rules meant to curb money laundering and offer better customer protection. Seemingly, the state is building on this 2015 bill to protect its citizens, who are also cryptocurrency investors, from scams and frauds.
However, it is good to note that under the US Constitution, there is no state agency mandated to directly supervise crypto exchanges. This has made many exchanges to function freely outside the tight rules and guidelines that the US Securities and Exchange Commission (SEC) puts on traditional securities like stock exchanges and broker-dealers.
In the meantime, recent academic research has established that traders may be manipulating Bitcoin’s value, and the US Department of Justice has started a criminal inquiry into the issue.
Aaron Wright, a professor at the Cardozo School of Law in NY, feels that the report means good to the crypto world since it will drive the “good actors” to make their activities fairer to consumers.