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.
Demetri Bezaintes, an associate, comments "attitudes to cryptocurrency are widely divergent from country to country. Someuntries 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." Demetri 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.
Demetri 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 anonymityprovided 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.
Demetri Bezaintes is an associate based in the London office within the Financial Services and Crypto Litigation Department. He is an SRA-regulated Registered Foreign Lawyer (RFL) in England & Wales and a qualified Greek Lawyer.(dikigoros).
Demetri has a thorough knowledge of investment fraud and fund tracing. He works tenaciously for our clients, advising on cryptocurrency, Forex trading disputes and regulatory investigations. He draws his expertise in investment law from his experience in the banking sector and his studies in banking and financial services regulation. Before 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 and is currently studying for the LPC at the University of Law.
Demetri also has experience of assisting high net worth individuals (HNWI) with real estate transactions arising from the Golden Visa scheme.
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