Malta-based cryptocurrency company probed in New York

Concerns about the lack of robust real-time and historical market surveillance capabilities

A Malta-based cryptocurrency exchange has been referred to the US department of financial services for potential violation of New York’s virtual currency regulations.

The New York State Attorney General said Binance, Gate.io and Kraken had been referred to the US department for financial services after an investigation into whether those platforms accepted trade from within New York state.

Binance, touted as the world’s largest cryptocurrency exchange, relocated to Malta earlier this year amid hype by the government. Malta’s embrace of blockchain technology led it to become a hub for cryptocurrency exchanges. Prime Minister Joseph Muscat had welcomed Binance to Malta in a Tweet.

As part of a study into the cryptocurrency market, the New York Attorney General sought the voluntary participation of 13 cryptocurrency exchanges in a fact-finding inquiry into the policies and practices of virtual asset trading platforms. Binance, along with three other platforms, refused to participate.

In the report, the Attorney General raised concerns about the lack of robust real-time and historical market surveillance capabilities.

Among participating platforms, the Attorney General’s office found that certain companies did not assume responsibility to stop traders from artificially affecting prices.

"Industry yet to implement serious market surveillance capacities"

Bitcoin, the most well-known virtual currency, is known for its wild price fluctuations.

Attorney General Barbara D. Underwood noted there was no mechanism for analysing suspicious trading strategies across multiple platforms. Few platforms seriously restricted or ever monitored the operation of automatic algorithm trading on their venues, the report said.

Certain abusive trading practices could be accomplished using computer-automated bot-trading strategies by, for example, submitting multiple illusory orders to a trading platform to impact the price of a particular asset.

The report said the industry had yet to implement serious market surveillance capacities, akin to those of traditional trading venues, to detect and punish suspicious trading activities.

It cautioned that the Attorney General’s office could not review the practices and procedures of non-participating platforms like Binance, Gate.io, Huobi and Kraken.

The Attorney General’s office raised the alarm about Kraken’s attitude towards abusive practices.

“In announcing the company’s decision not to participate in the initiative, Kraken declared that market manipulation ‘doesn’t matter to most crypto traders’, while admitting that ‘scams are rampant’ in the industry,” the report said.

The rise of the cryptocurrency industry has been causing concern in Europe too.

Europol said in a recent report that money launderers had evolved to use cryptocurrencies in their operations, urging EU member states to equip investigators with the skills to adequately probe such crimes.