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Binance, Kraken, Gate.io Referred to DFS by NY Attorney General for Potential Regulation Violation

The Office of the New York State Attorney General (NY AG) has published a report announcing the referral of three major cryptocurrency exchanges to the U.S. Department of Financial Services (DFS) for potential violations of state cryptocurrency regulations.

Published Sept. 18, the Virtual Markets Integrity Report focuses on the outcome of the Virtual Markets Integrity Initiative, which conducted an investigation into the policies and practices of cryptocurrency trading platforms and the level of compliance they adhere to within the state’s cryptocurrency regulation framework.

As part of the initiative, the NY AG office sent voluntary response questionnaires to 13 cryptocurrency trading platforms–receiving responses from Bitfinex, BitFlyer, Bitstamp, Bittrex, Coinbase, Gemini, iBit, Poloniex and Tidex.

However, four platforms—Binance, Kraken, Gate.io, and Huobi—declined to participate, sparking an investigation into whether or not they currently accept trades within the state.

Major Exchanges Potentially in Violation of BitLicense Framework

Under the New York State Administrative Procedure Act, any organization seeking to provide exchange services within the state as a customer business must seek a BitLicense, including out-of-state business.

While investigating the four platforms that declined to respond to the voluntary services, the Virtual Markets Integrity Initiative subsequently forwarded Binance, Kraken and Gate.io to the DFS for potentially violating New York’s virtual currency regulations.

The NY AG notes that all of the platforms that voluntarily provided data to the Virtual Markets Integrity Initiative use IP tracking methods to control access, but only BitStamp and Poloniex block masked VPN/IP addresses.

Exchange Access Control Methods

Allowing New York-based traders to access and trade on platforms that don’t possess a BitLicense isn’t the only concern of the Virtual Markets Integrity Initiative, however. The report notes that the platforms that refused to respond are based outside of the U.S. and may not disclose all order types offered to certain traders, labeling Kraken’s rejection of initiative participation as “alarming.”

Overall, the Virtual Markets Integrity Initiative provides accurate insight into the practices currently used by crypto exchanges to prevent manipulative conduct, abusive trading and market fairness.

The referral of Binance, Kraken and Gate.io to the DFS, however, appears to be based primarily on the platforms in question providing exchange services to New York-based customers without licensing:

“The OAG investigated whether those platforms accepted trades from within New York State. Based on this investigation, the OAG referred Binance, Gate.io, and Kraken to the Department of Financial Services for potential violation of New York’s virtual currency regulations.

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