Binance and other cryptocurrencies will be held accountable for stopping criminals from moving assets from their platforms to avoid scrutiny, after a judge from the UK Supreme Court ruled that exchanges should be recognized as trustees of stolen cryptocurrencies.
A ruling on June 24, published on July 12, provides a clear direction for British crypto laws.
The decision also means that where British citizens are affected by fraud, exchanges will be subject to British law, even if they and the stolen assets are based abroad.
The players in the crypto industry are in sharp focus in the midst of a meltdown in the sector and daily calls for urgent rules to tame the market’s “Wild West” picture.
Bank of England Deputy Chairman Jon Cunliffe and the incoming head of the Financial Conduct Authority Ashley Alder have both commented on the need for tighter regulation of the industry recently. The latest ruling by British courts brings stock exchanges further in line with similar rules governing traditional financial platforms.
Why does it matter?
Regulated exchanges in traditional finance – tradfi – have long been subject to rules that force them to keep stolen money so that it cannot be laundered through other assets. For crypto exchanges, however, this is new territory.
Charley Cooper, CEO of the blockchain company R3, said that on a practical level, the ruling would not cause problems for Binance or other exchanges such as OKX. “Most of these exchanges are quite sophisticated – they would have no problem keeping that money,” he said.
But Cooper, a former CEO of the US Commodity Futures Trading Commission, said it gives Binance and other firms a clear indication that crypto “is beginning to be treated like the old financial world and kept to the same standards.”
In the absence of regulation from the FCA and other watchdogs, more examples of this will probably follow as the courts take matters into their own hands, Cooper added.
“If stock exchanges have not thought about it already, they need to figure out how to comply with more common financial rules,” he said.
What else did the Supreme Court say?
The decision also included an order that would now allow court documents to be served across the blockchain, in the form of a non-fungal token, first in the UK.
Going forward, exchanges will be forced to reveal who the alleged fraudsters are when they are brought to justice.
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Ari Redbord, head of legal and government affairs at blockchain intelligence firm TRM Labs, said this would “make it easier for those trying to recover funds stolen from an unknown wallet address on the blockchain”.
What does this mean for the victims?
Joanna Bailey, an associate at Giambrone & Partners, the firm that worked on the case, said it was “a fantastic verdict for consumers who have been scammed”.
This is because victims of cryptocurrency fraud could sue thieves, where they previously could not, by sending documents to previously unknown fraudsters to their digital wallets.
Before, they would only have been able to sue anonymous thieves, who could hide behind aliases and online accounts linked to the crypto wallets. In legal terms, this is defined as “unknown persons”.
The process is efficient due to the nature of an NFT, Redbord said, in that it is both impossible to replicate and it is permanently attached to a specific location on the blockchain.
It “makes it a perfect vehicle for legal proceedings as it provides evidence of effective service,” said Redbord, a former senior financial intelligence adviser to the US Treasury Department.
“As we see the NFT space evolving from digital art and collectibles – think Bored Apes and CryptoPunks – this is a great utility case.”
To contact the author of this story with feedback or news, email Alex Daniel
