Cryptocurrency exchange probe finds poor practices

NEW YORK: Several cryptocurrency exchanges are plagued by poor market surveillance, pervasive conflicts of interest and lack sufficient customer protections, the New York Attorney General’s office said in a report published last week.

The study found that online platforms where virtual currencies such as bitcoin can be bought and sold by individuals operate with lower safeguards than traditional financial markets, are vulnerable to market manipulation and put customer funds at risk.

‘‘As our report details, many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges,’’ Attorney General Barbara Underwood said in a statement.

As a result of the findings, the attorney general asked New York’s Department of Financial Services (NYDFS) to review whether three exchanges might be operating unlawfully in the state.

The attorney general’s office launched its Virtual Markets Integrity Initiative in April 2018, asking 13 platforms to voluntarily share information about their practices.

Four platforms did not participate, claiming they did not allow trades from within New York State. The Attorney General’s office investigated whether the platforms did operate in the state, and has referred three — Binance, Kraken and Gate.io — to NYDFS.

US and international regulators have begun clamping down on malpractices in the cryptocurrency market over the past year as trading in the nascent asset class boomed.

Two Wall Street regulators last week announced a series of actions, including levying fines against companies involved with cryptocurrencies, while a New York federal judge ruled a case could proceed in which US securities law was being used to prosecute fraud cases involving cryptocurrency offerings.

The attorney general’s report detailed how some of these platforms conduct overlapping lines of business that present ‘‘serious conflicts of interest‘‘, including trading for their own account on their own venues. Some platforms also issue their own virtual currencies or charge companies to list their tokens.

Although some platforms police their markets for trading abuses, others do not, the report found. — Reuters