Cryptocurrency developed, over time, through the convergence of various technologies and the desire for a decentralised economy. The launch of Bitcoin in 2009 following the publication of Satoshi Nakamoto's white paper "Bitcoin: A Peer-to-Peer Electronic Cash System" in 2008, heralded an entirely new concept. The financial markets and the broader financial industry did not immediately embrace cryptocurrency and it was, at first, not widely understood by financial experts or the public. As it was a completely new financial model it was also unregulated.
Albeit cryptocurrencies were volatile, they evolved quickly. Different countries developed different attitudes, some embracing the idea of cryptocurrencies, whilst others implemented outright bans on them, largely due to concerns over economic stability, technological complexity and each country's individual government policies. China, India, Russia, Nigeria, Turkey and Bolivia all have varying degrees of sanctions preventing or limiting cryptocurrency trading.
On the contrary, Canada, America, El Salvador, Singapore, Japan, Switzerland and Estonia have more progressive approaches and have widely accepted cryptocurrency with greater or lesser degrees of regulation.
This leaves the United Arab Emirates, South Korea, Brazil, together with the UK, reacting piecemeal to regulating cryptocurrency, introducing regulations often as a reaction to fraud. The primary regulator of cryptocurrency in the UK is the Financial Conduct Authority ("FCA") together with HM Treasury, which assists with shaping the policy, and the Bank of England, which monitors the impact of cryptocurrency on the financial stability of the market. The Government set up the Cryptoassets Task Force in 2018 with the intention of understanding the impact of cryptocurrency in the UK. The Cryptoassets consultation in 2020 attempted, amongst other things, to categorise and understand better the risk and effect of digital assets.
It is fully recognised across the UK and the European Union that extensive regulations and controls must be put in place to protect investors and prevent fraud and money laundering. The UK continues to review the cryptocurrency market and has the intention of creating a regulatory landscape that protects investors and creates a secure dependable environment for investment.
The European Union introduced wide-ranging regulations with this aim, the Markets In Crypto-Assets Regulation ("MiCA"), introduced in May 2023, requires a business that either issues or trades in cryptocurrency to apply for and obtain a licence and furthermore, starting in January 2026, the name and amount sent by all senders and beneficiaries will be required. Self-hosted wallets with more than €1,000 held in the wallet will be obliged to submit wallet ownership verification for all transactions. The European Security and Markets Authority is undertaking a consultation with the public regarding a range of measures which will be considered when further regulations are drafted.
The UK continues to review the cryptocurrency market and has the intention of creating a regulatory landscape that protects investors and clarifies the permitted procedures and the way cryptocurrency and stablecoin - which is similar to cryptocurrency the major difference being that when issued the issuing company holds a similar value in fiat currency. The FCA aims to combat the potential for money laundering, prevent the financing of terrorism and also to eliminate widespread fraud. It works in collaboration with other organisations such as the Financial Action Task Force ("FATF") to develop global standards for cryptoasset regulation.
The various bodies that oversee the financial markets are recently taking a more stringent attitude to the regulation of cryptocurrency and high-risk financial services. The FCA, for example, has recently demonstrated its objective to eliminate unscrupulous business practices with the delivery of a considerable fine, in the sum of £3,503,546.00, to CB Payments Limited (part of the Coinbase Group) for improperly providing services to 13,416 high-risk customers. This was the first time the FCA has taken action under the Electronic Money Regulations 2011 and it will almost certainly continue to act when breaches are discovered. Therese Chambers, joint executive Director of Enforcement and Market Oversight at the FCA pointed out "...The money laundering risks associated with crypto are obvious and firms must take them seriously. Firms like CBPL that enable crypto trading need to have strong financial crime controls. CBPL's controls had significant weaknesses and the FCA told it so, which is why the requirements were needed. CPBL, however, repeatedly breached those requirements. This increased the risk that criminals could use CBPL to launder the proceeds of crime. We will not tolerate such laxity, which jeopardises the integrity of our markets..."
As the crypto market continues to evolve, the measures to eliminate misconduct are increased from all angles in order to prevent fraudsters, terrorists and money launderers from benefitting from the use of crypto assets in their illegal endeavours. The National Crime Agency (NCA) and police have been given the power to seize, freeze and where considered necessary, to destroy cryptoassets that are in the hands of criminals without the requirement of making an arrest before doing so, which considerably improves the prevention of fraud.
Fraudsters identified cryptocurrency as an ideal medium for investment fraud, relying on anonymity and the immutability of the blockchain. The additional powers granted to the NCA and police will also enable them to transfer suspected illicit crypto assets into an electronic wallet which is controlled by law enforcement, thereby preventing the fraudsters from accessing those assets.
The cryptocurrency market, if properly regulated, has the capacity to expand and enrich the economies of countries that embrace it. Donald Trump, the Republican candidate in the forthcoming election in the U.S., announced at a Bitcoin conference in Nashville that he aimed to make America the world leader in crypto assets. He further suggested that he would develop a cryptocurrency "stockpile" to be retained as a national asset. However, he did not explain how this could be achieved. Mr. Trump's aspiration may face competition from other countries who are also keen to lead the way with cryptocurrency, such as the United Arab Emirates where over 30% of the population own cryptocurrency and Vietnam where over 21% of the population own cryptocurrency. If America does take a lead role in the crypto market, it is possible that it could be made legal tender and be subject to a far greater level of regulation than currently exists.
All countries supporting the crypto market should develop a framework of oversight and regulation for cryptocurrency. Comprehensive regulation globally requires a balance between financial innovation and the protection of customers to prevent illegal activities such as fraud and money laundering and ensure financial stability. The International harmonisation of standards and legal definition, as well as cross-border co-ordination to ensure consistent enforcement and compliance are also necessary next steps. Most countries will require new legislation to enable specific laws to incorporate crypto-specific considerations. Maintaining a balance between further innovation and protection for the consumer may prove a challenge as cryptocurrency continues to evolve, reshaping the global landscape.
Demetri Bezaintes has a comprehensive understanding of investment fraud and fund tracing. He assists our clients by advising on cryptocurrency, Forex trading disputes and regulatory investigations. His previous expertise in investment law and his experience in the banking sector enable him to work towards regaining the funds lost to fraud. Prior to joining Giambrone & Partners Demetri worked at an international bank, where his main focus was the enforcement of freezing orders and third-party debt orders. He approaches cross-border jurisdiction matters with a comprehensive view, based on his knowledge of both civil and common law. After qualifying as a lawyer in Greece, he obtained a Graduate Diploma in Law from the University of Westminster.
If you believe you have been defrauded in a cryptocurrency scam and would like to know more about how Giambrone & Partners can assist please contact Demetri's clerk Sam Groom on SG@giambronelaw.com or please click here
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