A report released today by the New York Attorney General’s office has found that cryptocurrency exchanges are vulnerable to market manipulation.

The Virtual Markets Integrity Report tabled the findings of an investigation launched in April based on data collected from major cryptocurrency exchanges on their operations, use of bots, conflicts of interest, outages and other key issues.

The report found a number of issues with the practices of cryptocurrency exchanges, the headline finding being issues in relation to monitoring and preventing market manipulation. “The industry has yet to implement serious market surveillance capacities, akin to those of traditional trading venues, to detect and punish suspicious trading activity,” the report noted.

Oddly, given a number of the exchanges surveyed have been licensed in New York, the report also claimed that “[Virtual] asset trading platforms now in operation have not registered under state or federal securities or commodities laws. Nor have they implemented common standards for security, internal controls, market surveillance protocols, disclosures, or other investor and consumer protections. Accordingly, customers of virtual asset trading platforms face significant risks.”

A number of exchanges that were asked to respond to questions for the investigation refused. The report said Binance, Gate.io and Kraken had been referred to the state’s Department of Financial Services on the basis that they are believed to be operating in New York but without licensing. Singapore-registered exchange Huobi was mentioned in the report as well but was not referred for further investigation.

Cryptocurrency trading in the U.S., unlike just about everywhere else in the world, requires state-based licensing. Calling it a minefield of regulatory red tape is an insult to minefields. New York requires anyone offering cryptocurrency services to people within the state to hold a Bitlicense, and Binance, Gate.io, Kraken and Huobi do not have one.

Kraken responded to the market manipulation side of the report, oddly claiming that market manipulation “doesn’t matter to most crypto traders” while at the same time conceding “scams are rampant in the industry.”

The report also noted that although most exchanges use know-your-customer procedures — regulations that force financial services providers to identify their customers — Bitfinex and Tidex do not, “requiring little more than an email address to begin trading virtual currencies.”

Photo: Marco Verch/Flickr