The New York Attorney General’ office on September 18 published a report that says that cryptocurrency exchanges are vulnerable to conflicts of interests, manipulation as well as many other consumer risks. The 32-page “Virtual Markets Integrity Report” highlights concerns that exchanges are not doing much to protect investors.

Launched in April, the “Virtual Markets Integrity Initiative” kicked off when Eric T. Schneiderman, the then-New York Attorney General, sent letters to thirteen cryptocurrency exchanges requesting information on their operations, internal controls as well as other key issues.

“The New York State Office of the Attorney General (the “OAG”) launched the Virtual Markets Integrity Initiative to protect and inform New York residents who trade in virtual or “crypto” currency. As a medium of exchange, an investment product, a technology, and an emerging economic sector, virtual currency is complex and evolving rapidly. The OAG’s Initiative, however, proceeds from a fundamental principle: consumers and investors deserve to understand how their financial service providers operate, protect customer funds, and ensure the integrity of transactions,” reads the statements from the Attorney General’s office.

“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 Key Findings

The study found that the absence of accepted methods of auditing virtual assets has resulted in the lack of a consistent and transparent approach to the independent auditing of digital currencies trade on the exchanges. This, therefore, puts the customers’ funds in the various exchanges at risk of theft or cyber-attacks.

“New Yorkers deserve basic transparency and accountability when they invest – whether on the New York Stock Exchange or on a cryptocurrency platform,” Barbara Underwood, New York’s current Attorney General said in a statement. “Many virtual currency platforms lack the necessary policies and procedures to ensure the fairness, integrity, and security of their exchanges.”

One of the more bizarre revelations was that only four cryptocurrency exchanges have mechanisms for market manipulation detection and prevention in place. The four exchanges – HBUS, Coinbase, Gemini and Bittrex – are therefore the safest options for crypto investors.

On the flip side, the report went on to refer three major New York crypto exchanges – Gate.io, Binance, and Kraken – to authorities over charges of violation of state law for allowing trading on the part of New Yorkers.

The report has attracted an equal measure of support and criticism from the crypto exchanges and other stakeholders of the industry. Still, it is going to be a while before we finally see the ramifications of these findings.