US Cryptocurrency Exchanges Facing Renewed Scrutiny

US Cryptocurrency Exchanges Facing Renewed Scrutiny

By Benson Toti - min read
Updated 21 March 2023

Cryptocurrency exchanges in the US are once again facing renewed scrutiny after the New York attorney general ordered a probe into their operations. 13 exchanges including Coinbase, Bit Trust , Bitstamp and Gemini have received letters requesting for information on cryptocurrency traders and investors.

This comes after recent revelations that only a few taxpayers declared their cryptocurrency investments to the IRS.

The move could be a prelude to tighter regulation on the emerging market. Calls for regulations have been intensifying including recently from the IMF chief Christine Lagarde. A statement she made on Tuesday, however, indicated that she is softening her stance on digital 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,” the letter from Attorney General Eric Schneiderman’s office said.

However, “consumers do not have the basic facts they need to assess the fairness, integrity, and security of these trading platforms.”

Virtual Markets Integrity Initiative

“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,” the statement said.

The questionnaire from the AGs office includes among other things questions about anti-money laundering and security controls to prevent hacking. Others include questions about trading policies, fees and procedures.

Other questions touch on measures to fight market manipulation and operation of bots.

Department of Justice

“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 press release said.

Parallels with Japan

The move mimics a similar one in Japan where the Financial Services Agency is conducting a wider crackdown in exchanges including physical inspections. Exchanges operating in Japan are required to implement strict anti-money laundering and cyber security controls.

Kraken is the latest exchange to exit the country after what it termed as high cost of operation. Two other exchanges have voluntarily shut down after being issued with improvement orders by the FSA.

Last month Binance was ordered to cease operations in the country after being found to have been operating without a license.

Several countries including the G20 members who recently met in Argentina are preparing regulations for the sector.

The market made a surprise rally last week that saw bitcoin shoot above $8000. The latest news has had little effect on the market. Momentum is, however, slowing overall from yesterday’s trading.

IMF Chief on Regulation

IMF Chief Christine Lagarde made a more balanced even positive assessment of the market yesterday in a blog spot. Bitcoin is trading at $8093 on Bitfinex, managing to stay above $8000 for almost a week now.

Christine Lagarde

While noting the obvious challenges that come with cryptocurrencies, Lagarde said they can have “a significant impact on how we save, invest and pay our bills.”

Legislators “should keep an open mind and work toward ­­an even-handed regulatory framework that minimizes risks while allowing the creative process to bear fruit,” Lagarde added.

Lagarde noted that crypto-assets enable fast and inexpensive financial transactions while offering some of the convenience of cash. Some payment services now make overseas transfers in a matter of hours, not days, she noted.

She even went on to say there may be a demand for central banks to issue their own digital currencies in remarks that were generally received positively by the cryptocurrency community.

She, however, noted that regulating the sector will take the collective effort from the global community.