The FCA announces new Regulations to control Cryptocurrency transactions- will they be enough?

Financial regulators across the globe have found it particularly challenging to deliver enforceable legal regulatory protection to consumers. Despite the fact that crypto assets have been present in the financial market for over a decade there is no worldwide governance overseeing the issuing and trading on those often volatile products. The International Monetary Fund points out that applying existing regulatory frameworks to cryptocurrency may not be easy or even possible to achieve. Traditional organisations operating in the financial markets are authorised by the appropriate governing body to undertake predetermined activities under defined conditions and scope. Crypto assets are in fact codes, only capable of being stored and accessed electronically, the value of which is not necessarily pegged to the value of fiat currencies.

This is compounded by the fact that Decentralised Finance (DeFi) evolves so rapidly that the regulators struggle to acquire the expertise that enables them to keep pace with this ever-changing area.

Joanna Bailey, a partner,  comments “Attitudes to cryptocurrency are widely divergent from country to country. Some countries see it as the future and embrace it, others are strongly opposed to its use. China has implemented strict regulations on cryptocurrencies. In 2017, the country banned initial coin offerings (ICOs), and in 2021, it further intensified restrictions by prohibiting financial institutions and payment companies from providing cryptocurrency-related services.” Joanna further commented, “whereas Malta, Switzerland and Singapore have positioned themselves as favourable to cryptocurrencies and blockchain technology and have created positive regulatory environments and host numerous cryptocurrency and blockchain-related companies.”

The Financial Conduct Authority (FCA) has announced this week that it is introducing new regulations aimed at the crypto market. From 8 October 2023, all organisations involved in cryptocurrency investment will have to make sure that their customers fully understand the crypto market and have the appropriate experience and knowledge to invest in cryptocurrency. Furthermore, the practice of paying bonuses to people who “refer a friend” will end. 

The FCA also requires all firms promoting crypto products to retail investors to add a risk warning in the following terms: “Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you are unlikely to be protected if something goes wrong. Take two mins to learn more.”

Also, crucially, a 24-hour cooling-off period is to be introduced so that consumers have time to consider their investment, as the FCA observed that many novice cryptocurrency investors regret making 'hasty decisions' when buying cryptocurrency. It is hoped that the creation of this obligatory pause-for-thought period before investing will assist in preventing “romance fraudsters” who are known to rush their novice investor targets into investing in scam cryptocurrency schemes.

Joanna further commented “the need for regulation to control cryptocurrency is urgent as cryptocurrency has proved to be the easiest financial asset to use to defraud individuals in investment fraud, using the anonymity provided by the blockchain. However, the banking and fraud litigation team Giambrone & Partners developed a strategy to counter the wrongdoers’ scams in a ground-breaking case, D’Aloia –v-Persons unknown and others, where a world-wide freezing order was served as a non-fungible token (NFT) through the blockchain upon the anonymous fraudsters, thereby offering victims of cryptocurrency fraud a lifeline to recover their lost funds.”

Whilst Giambrone & Partners’ revolutionary case has slowed the rapid rise of cryptocurrency to some degree, many people will still be defrauded by cryptocurrency scams. Our highly experienced banking and financial fraud litigation lawyers work tirelessly to develop approaches and strategies to enable our defrauded clients to recover their lost money.

Sheldon Mills, executive director of consumers and competition at the FCA, pointed out that “cryptocurrency remains largely unregulated and high risk. Those who invest should be prepared to lose all their money. Any future advertisements and campaigns promoting will be forced to put clear risk warnings and ensure adverts are clear, fair and not misleading.”

Consumers are constantly targeted in a range of sophisticated scams and frauds against which our well-regarded banking and financial fraud litigation lawyers are dedicated to confounding and retrieving our clients’ funds.

Joanna Bailey heads our banking and financial fraud litigation department.

Joanna frequently leads the litigation against financial institutions involved in cryptocurrency trading disputes, as well as Forex investment issues and regulatory investigations and has some considerable success in retrieving our clients' funds lost in fraud.

She has developed a range of strategies both to find the assets of the individuals perpetrating the fraudulent schemes and restore the funds to our clients. As well as recognising culpability in the organisations facilitating (but not associated with the fraud), by failing to undertake adequate due diligence.

Joanna led the first case in Europe where proceedings were served on Persons Unknown connected with two digital wallets over the blockchain by non-fungible token or ‘NFT’ in a cryptocurrency fraud. Following this ground-breaking case Joanna was named as Lawyer of the Week in the Financial Times.

Joanna is highly experienced in high-value out-of-court settlement negotiations and has in-depth knowledge of the Civil Procedure Rules as well as English common law.

If you have been the target of scammers and have lost money in a cryptocurrency fraud and you would like to know what you can do please contact us at clientservices@giambronelaw.com or click here.