On April 17, 2018, the New York Attorney General’s Office (“OAG”) launched a Virtual Markets Integrity Initiative and sent letters to thirteen cryptoasset trading platforms requesting, through a questionnaire, disclosures on their operations, internal controls, and safeguards to protect customer assets. The questionnaire focused on six major topic areas, including: 1) Ownership and Control, 2) Basic Operation and Fees, 3) Trading Policies and Procedures, 4) Outages and Other Suspensions of Trading, 5) Internal Controls, and 6) Privacy and Money Laundering. The OAG characterized the initiative as a mechanism to “increase transparency and accountability” on “platforms used by consumers to trade virtual or ‘crypto’ currencies like bitcoin and ether.” Notably, the thirteen trading platforms were only given two weeks to respond to the questionnaire.
While cryptoasset exchanges already face regulatory scrutiny from the SEC, the CFTC, and certain state regulators (including other agencies within New York), among others, the OAG determined that their mandate to protect customers/ investors and ensure the fairness of New York’s financial markets necessitated further action. Two of the targeted trading platforms – Coinbase and Kraken – publicized markedly different responses to the OAG’s inquiries, the content of which sheds light on how some of the industry’s key players are approaching regulation; and perhaps, how regulators should be approaching some of the industry’s key players.