According to a report published by the attorney generals office yesterday, crypto exchanges are right now susceptible to manipulation as well as conflicts of interest among other consumer risks. This comprehensive report mirrored the results born out of the virtual markets integrity initiative launched 5 months ago. This initiative was kickstarted after Eric T. Schneiderman, the New York attorney general sent out letters to 13 crypto exchanges. The letters were a request for each entities information regarding their operations, internal controls as well as other pertinent issues within the exchanges. This move was deemed necessary by authorities in order to keep average investors in the know.
The information would provide day to day investors with adequate information that would give them a proper understanding of the risks involved as well as the protections available in the crypto space. The recent report which is born out of the inferences of the previous one examines the activities of the top ten crypto trading platforms based in the united states as well as internationally. The report also looks at data collected by the attorney generals office on the condition of the digital currency market as a whole.
The report revealed that a gap when it comes to the presence of accepted methods of auditing virtual accounts resulted in the lack of a transparent approach when it comes to auditing digitally traded exchanges. This leads to customer funds being held in an exchange at risk due to possible hacks. The report raised worrying questions about the security of client funds as well as the sufficiency of commercial insurance arrangements already in place in case of loss. The report also exposed trading practices that were simply not in order with a lot of trading platforms having automated traders who are offered special conditions that leave retail customers at a loss.
It also came to light that cryptocurrency exchanges engage in several overlapping lines of business which raises questions of conflict of interest. This could happen when automated traders use multiple accounts to simultaneously obscure trading activities thereby manipulating prices. According to the report, several platforms trade own accounts in big volumes such that they make up large proportions of the total trading sphere. Several of these exchanges allow their employees to trade on their own venues. This raises questions of whether these employees use information that only they are privy to in order to gain undue advantage over other traders. This could amount to insider trading which can hand people lengthy sentences in prison.
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