While the New York Attorney General’s report on cryptocurrency trading platforms certainly landed a powerful blow in favor of the regulators, the report could dial up pressure on the exchanges to move toward greater transparency and better consumer protection, the MIT Technology Review reported on September 20.
The Battle Between Crypto Purists and Government Regulators
Despite still being a relatively young industry, cryptocurrency exchanges aren’t new to controversy. Thanks to the widespread adoption of some of the large exchanges such as Coinbase and Kraken, the issue of whether or not to regulate virtual currency trading platforms has become one of the main problems the industry has faced.
Split between the crypto purists, who believe that exchanges should be a safe haven from regulations and meddling, and the government, charged with protecting investors from fraud, the industry is heading towards turbulent times.
On September 18, the New York Attorney General’s office released a report produced in conjunction with its Virtual Markets Integrity Initiative, which investigated cryptocurrency exchanges.
The report caused a stir in the crypto industry, leading many exchanges to hit back at what they described as “unreasonable” and “biased”. The report was based on the results of a questionnaire sent to 13 popular exchanges back in April 2018. And while ten of the exchanges chose to comply, the analysis failed to paint anything but a rather bleak picture of the industry.
In particular, Attorney General Barbara Underwood lamented the widespread lack of “necessary policies and procedures to ensure the fairness, integrity, and security” of exchanges, the MIT Technology Review reported.
The Attorney General’s office keeps amping up the pressure partly due to the fact that it is the only government entity that has the authority to police these exchanges.
Increased Pressure Not Necessarily a Bad Thing
According to the MIT Technological Review, the September 18 report isn’t the only time New York regulators have shaken up the cryptocurrency exchange scene. In 2015, it introduced BitLicense, a first-of-its-kind licensing regime for digital currency companies that imposed rules meant to prevent money laundering and provide some consumer protections.
And while the licensing regime itself might not be what brought cryptocurrencies to the spotlight, a bit of structure coming from a government regulator certainly didn’t come in the way of the currencies mainstream adoption.
Aaron Wright, a professor at the Cardozo School of Law in New York, said the Attorney General’s office knows all of the ways traders can abuse marketplaces, and that its authority to police fraud could benefit the industry.
Wright added that the report will push the “good actors” to make their processes fairer to customers. “I think ultimately, as this industry matures, the marketplaces that are the safest and sound and secure will tend to win,” he added.
Featured image by RomainTrystram