Kraken, Binance, Gate.io Under Fire as NY Attorney General Suspects Unlawful Operations

Crypto exchanges Binance, Kraken, and Gate.io may be in violation of the New York state’s virtual currency regulations, the Attorney General’s office has said in a report.

Cryptocurrency exchanges Binance, Kraken, and Gate.io are facing regulatory scrutiny on suspicion of possible violation of state law, the New York Attorney General’s office said in a report published on Tuesday.

The state launched its Virtual Markets Integrity Initiative in April this year, asking 13 platforms to voluntarily share information about their practices, including internal controls and safeguards against market manipulation and fraud. Four of the exchanges - Binance, Kraken, Gate.io, and Huobi - claimed they do not allow trading from New York and refused to comply with the request.

In announcing the company’s decision not to participate in the initiative, Kraken declared that market manipulation “doesn’t matter to most crypto traders” even while admitting that “scams are rampant” in the industry. The statement was described by the AG as alarming and the the office investigated whether Kraken and its peers declining to respond to the questionnaire truly did not operate within New York. As a result, the AG has now referred three of them — Binance, Kraken, and Gate.io — to the New York Department of Financial Services (NYDFS) for potential violation of the state’s virtual currency regulations. Neither of the three exchanges has commented on the news yet.

The Virtual Markets Integrity Initiative report also identified three broad areas of concern in the crypto markets. First, the AG said many platforms have yet to implement efforts to monitor and stop abusive trading practices. Some of the crypto trading venues also conduct overlapping lines of business that present “serious conflicts of interest”, including trading for their own account on their own venues, as well as issuing their own virtual currencies or charging companies to list their tokens. The final major problem identified in the report is that cryptocurrency exchanges have limited protection of customer funds, with no generally accepted methods for auditing virtual assets.

“New Yorkers deserve basic transparency and accountability when they invest – whether on the New York Stock Exchange or on a cryptocurrency platform. Yet, as our report details, many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges,” the newly-appointed Attorney General Barbara Underwood said in a statement. “With this report, we hope to give New Yorkers the tools they need to make educated decisions on whether to entrust their money to a cryptocurrency platform and to help protect themselves against theft, fraud, and abuse.”