Cryptocurrency case tracker

In a judgment published recently, it has been reported that the High Court granted a claimant a proprietary freezing order over Bitcoin and Ethereum worth over £1.5 million held by Nebeus.com (the trading name of Money-4 Limited).  The Judge held that there was a real risk of dissipation as the individuals who ran Nebeus (who were also subject to the freezing order) could not confirm that it still had the cryptocurrency, which had been transferred to it as a wallet holder.  The Judge also found that a proprietary injunction was appropriate, as it was deemed to be property (or sufficiently similar thereto) and the order froze the actual quantities of cryptocurrencies rather than a monetary equivalent.  The judgment is dated 28 September 2018.

The Commercial Court granted the claimant an APO against 100 Bitcoin (worth over £1 Million at that time) that had been targeted in an email phishing attack.  The claimant's intended investment of 100 Bitcoin was intercepted, via a phishing email, and misdirected into a wallet held by fraudsters.  This was identified as being held with Coinbase in the UK (who were prevented from releasing the Bitcoins) and it is understood that Coinbase complied with the Court order and investigation.  The claimant sought the APO on the basis that Bitcoins were property, which the Court agreed with.

The High Court rejected the jurisdiction challenge of a defendant cryptocurrency trading platform, that had blocked the account of a wealthy individual trader.  Whilst the determination of whether an individual is trading for business or consumer purposes is fact-specific, in this case the individual, trading Bitcoin futures using her "surplus wealth", was a consumer.  Therefore the Claimant was entitled to bring proceedings in the English High Court, where she was domiciled, rather the courts of Cyprus (the defendant's domicile).

A question was asked in the House of Lords on 11 December as to whether the Government has plans for market regulation of cryptocurrencies. It was confirmed by Lord Bates, by reference to the report prepared by the Cryptoassets Taskforce, that: cryptoasset exchanges and wallet providers would be brought within the scope of the anti-money laundering regulations; that there would be consultation on whether the regulatory perimeter needs expanding to include cryptoassets; and that it would issue a consultation to explore whether exchange tokens and wallet providers could be further regulated. 

Link here.

At a European Parliament plenary debate on regulating virtual currencies and ICOs, Valdis Dombrovskis set out that the main questions for financial regulators are whether (i) crypto-assets are financial instruments, and are therefore covered by financial regulation, and (ii) that regulation is suitable and addresses the risks, whilst supporting and enabling the opportunities.  Financial regulation and definitions of financial instruments were developed before the age of crypto-assets and ICOs. It is, therefore, often not clear whether they are covered or not, even if they present similar features to financial instruments.

The Commission is assessing this question together with the European Supervisory Authorities, which are expected to present their conclusions by the end of the 2018.

Read more here.

The joint Taskforce found that whilst cryptoassets may have the potential to bring substantial benefits, there remain considerable risks such as harm to consumers and market integrity, the use of cryptoassets for illicit activities and potential threats to financial stability.  Importantly, the Taskforce report has committed to a number of actions to try to mitigate these risks, including consulting on FCA perimeter guidance by the end of 2018 to clarify which cryptoassets fall within the existing regulatory perimeter, and a separate consultation by Q1 2019 on a potential prohibition of the sale to retail consumers of derivatives (including contracts for differences, options, and futures) referencing certain types of cryptoassets.

A full copy of the Taskforce Report can be found here.

The Securities and Markets Stakeholders Group has advised ESMA on how to minimise the risks to investors in relation to ICOs and crypto assets. The report contains 3 principal recommendations. The first is that ESMA should publish guidance on the applicability of certain MiFID definitions to crypto assets, such as "transferable securities" and "commodities". The second is that ESMA should consider writing to the European Commission to request that asset tokens are added to the MiFID list of financial instruments, in order that secondary markets are brought within the scope of MiFID. Third, ESMA should give guidance for national authorities on co-ordinating regulatory sandboxes and innovation hubs – particularly in relation to keeping ESMA informed and increasing transparency to the public.

A full copy of the advice can be found on the ESMA website: https://www.esma.europa.eu/

The UK Treasury Committee has published a report on 'Crypto-assets' which follows its inquiry into Digital Currencies and distributed ledger technology in the UK earlier this year. In the Report, the Treasury Committee advises on the need for the introduction of regulation in the "wild west" of crypto-assets. It believes that if the UK "develops an appropriate and proportionate regulatory environment for crypto-assets and if future innovations in crypto-assets proved themselves as beneficial to society and industry, the UK could be well placed to become a global centre for this activity…".

A link to the report can be found here.

The FCA has written an open letter to CEOs of banks and financial institutions, setting out good practice guidance on how banks should guard against financial crime when dealing with clients crypto-assets.  Among the suggestions are enhanced due diligence on customers and increasing awareness amongst banks' staff.

A link to letter can be found here.

The Court found that it was appropriate to continue a non-disclosure order that the claimant obtained against unknown hackers.  The unknown hackers stole vast amounts of data and tried to blackmail the claimant for £300,000 in order not to publish it.  The Court was satisfied that the position had not changed since the interim non-disclosure order was granted and there was no evidence that the unknown hackers had complied with the original interim order.