Since 2011, Kraken has been a leader in the industry, actively developing and driving multiple self-regulatory organizations (DATA, JADA), and working with regulators to enact fair and effective rules to govern the evolving blockchain industry. Kraken wants to build that legitimate, professional exchange which would be capable of bridging crypto with traditional financial institutions and bringing it to the mainstream.
«It is a mission that we can’t accomplish without working with regulators», – says Kraken.
About the NYAG questionnaire
Kraken’s recent response to the NYAG’s questionnaire is not an indication that Kraken is opposed to working with government. Kraken sees the following problems with the NYAG’s request:
- The deadline of 2 weeks is unreasonable given the scope;
- The publication of the request, lack of any prior communication and inclusion of exchanges which are clearly outside of the AG’s jurisdiction (including Kraken) raise questions about the true motive;
- The request is ill-prepared: it asks questions irrelevant to the stated objective and misses obvious questions that actually would be helpful.;
- Much of this information was already provided by Kraken to the NYDFS in 2014;
- Much of this information was already provided by Kraken to FinCEN in 2017;
- Much of this information is publicly available on Kraken’s website;
- Some of this information is proprietary, trade secret information and kept confidential for competitive reasons;
- Some of this information is highly sensitive and kept confidential for security reasons;
- It is not clear that the complete production can remain private, especially given the government’s recent track record of getting hacked;
- The AG demands Kraken, which has no NY clients, to assist in protecting NY consumers (presumably against those who have obtained the BitLicense), without offering any sort of compensation for the professional consulting work.
Kraken believes that traders don’t actually care about answers to most of the NYAG Questionnaire questions. According to Kraken, the following points matters:
- Token selection
- Fast trade execution
- User Interface
- 24/7/365 continuous markets
- Privacy, minimal document requirement for on boarding
- Customer Service
About Kraken’s departure from Japan
«Ironically, after all the effort we put in to bringing about the VC Act in Japan, we decided to take a step back. Kraken is Japan’s oldest surviving exchange and we led the industry in forming an SRO (JADA) and engaging with government but we failed to gain significant market share. Perhaps we focused too much on regulation and not enough on marketing», – says Kraken.
Kraken had been grandfathered in to operating in Japan with a VC Act application pending, but the structure of its international business, broad token selection and extreme security measures added a lot of complexity that wasn’t shared by other applicants. While Kraken was still under evaluation, another major Japanese exchange was hacked, the scrutiny on Kraken intensified. A high likelihood that they would be required to substantially reduce its token selection appeared.
Kraken also says that regulators need to be wary of when taking feedback from competitors within an industry, because some may seek to leverage the regulator to eliminate their competitors’ legitimately earned advantages, at the expense of the consumer.
«Japan’s crypto market is sure to be highly competitive, which is a great thing for consumers. I have to give the FSA in Japan a tremendous amount of credit for getting it together. They are a fine regulator to work with. Hopefully, Kraken will find an opportunity to re-enter the market in the near future», – adds Kraken.
About consumer protection
Kraken says many of the threats that exist in the traditional financial services industry simply don’t exist in the crypto industry. Crypto industry has greater transparency, fewer middle men, instant settlement, irreversible transfers, individual custody, atomic swaps, programmatically enforceable contracts, single assets traded on hundreds of exchanges.
«Because we have all these things, we have less systemic risk and many advantages over traditional markets. Assumptions we make about how traditional markets work don’t apply to crypto markets and therefore we need to try to remember why we imposed a specific requirement in the first place, before we unnecessarily impose it on the crypto markets», – says Kraken.
About crime reduction
Crime reduction comes in the form of conscripting private businesses in to the surveillance and police forces. AML/KYC, identify verifications and transaction monitoring are a growing cost of doing business for any compliant crypto exchange, says Kraken. The exchange currently employs nearly 200 people (more than 25% of the company) in compliance-related functions. As of Q1 2018 Kraken is processing more than 1 law enforcement request per day, seven days a week. And law enforcement agencies in North America, Europe, Japan and Singapore see Kraken as a valuable resource.
«Independent of law enforcement and regulation, the major crypto exchanges for a long time have worked together on crime prevention and mitigation, sharing strategies and information, freezing stolen funds moving from one exchange to another. We do this because it’s in our best interest to keep criminals off of our platforms, and to protect consumers, our clients, from losing their money», – adds Kraken.