What has happened?

New York Attorney General Eric T. Schneiderman has launched an “inquiry into the policies and practices” of digital currency trading platforms used by consumers to trade virtual currencies, dubbed the "Virtual Markets Integrity Initiative".

What does this mean?

According to a press release, letters were sent to 13 major cryptocurrency exchanges, including Coinbase and Gemini Trust, requesting key information on their operations, internal controls and safeguards to protect customer assets.

“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. 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,” Schneiderman said.

The press release explains that the initiative stems from the Attorney General's duty to protect consumers and ensure the fairness and integrity of the financial markets.

Commenting on the development, Gregory Lisa, a partner in Hogan Lovells’ Washington D.C. and New York offices who represents virtual currency companies and other FinTechs, said:

“As it has on several other fronts – anti-money laundering, cybersecurity, consumer protection, and a host of other issues affecting the financial services industry and other critical industries – New York again reasserts itself. Attorney General Schneiderman, just like New York State Department of Financial Services Superintendent Maria Vullo, is announcing that he has no intention of taking a back seat to the federal government on these important, cutting-edge, and high-profile issues.”

As part of the initiative, a questionnaire was sent to the platforms, asking them to disclose information on six major topic areas, including details of ownership and control, basic operations and fees, as well as privacy and money laundering.

The questionnaire also asks the platforms to 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 initiative aims to ensure that investors and consumers have the information they need to understand the practices and the risks associated with cryptocurrency platforms.

The release said:

“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 Attorney General’s office will analyse the responses to the questionnaire, compare them across platforms, and present findings to the public.

The Investor Protection Bureau of the Office of the Attorney General sent letters to the following exchanges: Coinbase, Inc. (GDAX), Gemini Trust Company, bitFlyer USA, Inc., iFinex Inc. (Bitfinex), Bitstamp USA Inc., Payward, Inc. (Kraken), Bittrex, Inc., Circle Internet Financial Limited (Poloniex LLC), Binance Limited, Elite Way Developments LLP (Tidex.com), Gate Technology Incorporated (Gate.io), itBit Trust Company, and Huobi Global Limited (Huobi.Pro).

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