WHY WE NEED TO CALM DOWN ABOUT CRYPTO: A FINANCIAL REMEDY BARRISTER’S PERSPECTIVE Authored by Katharine Bundell, Barrister, 4PB
I love that my job grows with me, bringing new challenges and learning. Time has also brought perspective on the warp and weft of various panics over the years: Brexit and foreign property and managing remote working in the pandemic come to mind. A current issue causing a stubborn fear and loathing is digital currency. My feeling is: don’t panic. Digital assets may have more unusual structural features, new terms, raise issues of disclosure, jurisdiction, enforcement and valuation, but we have seen all of these issues before. Maybe we have not seen them in this confluence, all in one class of assets, but we have tools for them individually. In mid-2022 judges dealing with complex financial remedy cases had training from crypto specialists: it could be time for us to do the same. I remember the first time I had a case with a significant Lloyds syndicate holding. I had to sit down and do some proper homework, but the dust eventually settled. Have we turned away from crypto cases, worried it is all too new and difficult? It is an asset structured like no other but we have time to learn about it and we have tools to manage the issues it presents. It is not about to overwhelm us. On a macro level, the digital asset market has managed to evade much regulatory oversight, but Governments prefer (1) their financial markets to be regulated . On a micro level, most individuals do not have the financial capacity to loose 40% of their assets in a year to market fluctuation. Some individuals crave the anonymity of trading crypto, but many are anxious about a system which has no real safety net. Only 6% of Brits are said to own any crypto currency at (2) all . There are still very few cases then, where digital assets are such a high percentage of the marital wealth that they cannot be offset or shared.
[1] Binance has just agreed to pay the Commodity Futures Trading Commission in the USA £2.7bn for not protecting against money laundering and lawsuits are picking up over the pond [2] Finder.com survey November 2023 [3] Since January 2020, firms carrying on cryptoasset activity in the United Kingdom have had to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692). [4] https://coinstats.app and similar sites give you values for various assets
The point of this article is not to tell you about cryptocurrency but to consider some of the regular issues it presents and the tools we use when dealing with them: Type of Asset: In November 2019 the UK Jurisdictional Taskforce (not to be confused with the joint ‘Cryptoasset Taskforce’), published a paper called ‘Legal statement of cryptoassets and smart contracts’, in which they concluded that ‘cryptoassets possess all the characteristics of property’ and this was approved in AA v Persons Unknown [2019] EWHC 3556 (Comm) by Bryan J. Crypto is therefore just property and can be subject to an order for sale, with division of the net proceeds or transferred into a wallet in the name of the other party. Disclosure: You need to know what currencies/tokens are held and how much. The evidence of the fiat (original) currency purchase which bought the digital currency is helpful and have a good stock of questionnaire questions in your templates. Most owners hold custodial funds, where the currency is traded by a third party or exchange who also holds the trading documents. In the UK we have Know Your (3) Customer (KYC) compliance for central regulated exchanges so the owner is identifiable. Non-custodial funds are held only by the individual, so can pose more disclosure challenges. In personam orders may be needed (see below).The best guesstimates are that <25% of Bitcoin will never be recovered as the private keys have been lost, so it may be true that a party cannot access the asset, if it was bought a long time ago.
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