Do all crypto trading platforms have licenses to operate?
A lot of cryptocurrency trading platforms have sprouted like mushrooms on the internet simply because digital assets have a great potential as investments. Cryptocurrency trading platform operators are often required by financial regulators to secure operational licenses to protect investors from fraudsters.
It's risky to deal with unregulated trading platforms
Although cryptocurrencies are now accepted in various transactions in many countries, crypto trading platforms need to be regulated because of the associated risk brought by unregulated cryptocurrency online trading. Just recently, the U.S. Securities and Exchange Commission (SEC) charged EtherDelta founder Zachary Coburn for operating an unregistered securities exchange. Traders have a higher chance of losing their crypto investments if they transact with unregulated crypto trading platforms. SEC’s Enforcement Division Co-Director, Steven Peikin, stressed the importance of enforcing existing laws and “thoughtful oversight” of digital markets to protect investors.
In 2017, some crypto trading sites claimed they were regulated by U.S. SEC, but the SEC Chairman in a statement said it had not approved exchange platforms that stored cryptocurrencies. A thread in Quora entitled “What license do I need to create a crypto exchange?” has revealed that crypto trading platforms may operate without a license but it’s often risky and they will find it difficult to attract traders. Aside from hacking vulnerability, financial regulators believe that unlicensed crypto trading platforms may get involved in fraudulent trading activities like "pump and dump" or "scalping."
Crypto trading platform licenses depend on the scope of operation
Like any other businesses, crypto trading platform operators need to apply for licenses in countries where they plan to operate. For example, Japan’s financial regulator, the Financial Services Agency (FSA) 金融庁, requires crypto platform operators to secure licenses to protect investors from cybercriminals and fraud.
The SEC in the U.S. also requires crypto trading platform owners to have a license before they can operate. Central banks in some countries issue licenses to allow crypto trading platforms to operate within the jurisdiction. Financial regulators encourage cryptocurrency traders to transact only with fully licensed crypto trading platforms to reduce the risk of getting scammed.
Crypto traders should do their homework too
Investors who want to start trading cryptocurrencies should note that it can be very difficult to determine if a particular crypto trading platform operator has a license to operate or not. There’s a good reason why cryptocurrency trading is referred to as the “wild west” of the internet. Potential investors should know that there are crypto trading platform operators who have decided to secure licenses to legally operate in many countries. Financial regulators and crypto trading informational sites often advise potential investors to do their research when choosing a crypto trading platform. SEC has provided questions for crypto traders to determine if a particular trading platform is a legitimate business or a fraud.
Because there’s no overall regulating body that oversees the crypto exchange industry, there are crypto trading platforms that operate even if they don’t have a license or their license application is pending. It’s important for crypto trading platforms to secure licenses from financial regulating bodies in order to protect traders from fraud.