Moments after Binance Australia released its statement regarding its measures to protect vulnerable clients, the American branch of the exchange has been put in the spotlight for allegedly not following investor protection protocols. Brian Shroder, CEO of Binance US, has received a letter from the federal government asking the crypto exchange to produce documents that prove the exchange’s adherence to investor safety protocols. Binance is one among 4 other exchanges that have received letters from the federal government. The others are FTX, KuCoin, Kraken and CoinBase.
In the letter to Binance U.S, Congressman Raja Krishnamoorthi of the Subcommittee on Economic and Consumer Policy brings up the issue of the lack of cooperation by crypto exchanges. He alleges that exchanges are not complying with the US government’s efforts to combat financial fraud and safeguard investors.
The Congressman writes,
“I write to request information and documents about the work that BAM Trading Services, d/b/a Binance.US (Binance), is doing to combat cryptocurrency-related fraud. Cryptocurrencies have become scammers’ favored means of payment as well as their preferred bait for unsuspecting victims. The annual amount of cryptocurrency lost to fraud is on track to surpass $1 billion in 2022.”
Krishnamoorthi goes on to say,
“I am concerned about the growth of fraud and consumer abuse linked to cryptocurrencies. Notwithstanding federal regulations, cryptocurrency exchanges must themselves act to protect consumers conducting transactions through their platforms. By implementing audit policies, requiring certain disclosures, delisting, and adopting other safety mechanisms, cryptocurrency exchanges can—and should—create safer environments for consumers.”
The Congressman also expressed doubt about the evaluation procedure used to list tokens on cryptocurrency exchanges.
The letters have asked the exchanges to produce all documents relating to their efforts in combating crypto scams and frauds. The exchanges will also need to provide all documents regarding how the exchange identifies, investigates, and removes fraudulent assets or accounts. The exchanges need to provide all documents regarding policies that govern cryptos, traders, buyers, sellers, investors, consumers, or any other individual or entity using their products.
The crypto exchanges will need to produce all documents since they began their operations. The exchange has until the 12th of September to come forward with all requested papers.
What are Binance and crypto exchanges required to do?
Congressman Krishnamoorthi has sent letters to four federal agencies, and five crypto exchanges. The agencies in question are the U.S. Department of Treasury, Securities and Exchange Commission, Commodity Futures Trading Commission, and Federal Trade Commission. Meanwhile, the five exchanges are Binance.US, Coinbase, FTX, Kraken, and KuCoin.
According to the letter, Congressman Krishnamoorthi reaffirmed that crypto exchanges must create audit policies. Moreover, exchanges should require specific disclosures, and delistings, and implement other safety systems to assure investor protection.
Congressman Krishnamoorthi’s letter comes hot on the heels of Binance Australia’s press release regarding its measures for protecting vulnerable investors. Nonetheless, it is not surprising to see government officials looking into crypto exchanges, given the sheer number of scams and frauds that take place in the industry. As per a report from Chainalysis, crypto scams have reduced in 2022, but hacks continue to plague the space. The reduction in scams is most likely due to markets being down, and new investors not entering the space.