Responsibility to counter crypto scams lies with each actor in the value chain, not just crypto exchanges; education could benefit consumers more than bans.
WESTPAC’S EFFECTIVE BAN ON CRYPTO TRANSFERS
Reading this article got me thinking about crypto-fraud prevention and making victims whole. The Australian Competition and Consumer Commission (ACCC) recently published a report into investment scams and Westpac Bank, as a result, has effectively banned transfers of money to crypto exchanges like Binance.
Fair or not, there is at least one indisputable outcome because of Westpac’s actions: retail punters will be driven to dodgier offshore exchanges. They won’t be coerced into avoiding investing in digital assets all together. That seems to be the intent here; it certainly seems that way in the US, but I digress. Let’s face it, folks will find a way to punt … with full awareness of the risks. Seems to make more sense to keep closer tabs on virtual asset/digital asset service providers and not enact effectively what are bans. We’ve seen Binance, for example, driven out of the US, Canada and now Australia. That may be for good reasons but let’s not lose sight of the other actors in the ecosystem.
It feels like Westpac places most of the blame for crypto scams at the feet of crypto exchanges but I’m not convinced that is the right place for blame. With regard to scams in the crypto asset space, banks, card issuers, exchanges and national watchdogs like the ACCC seem to be best placed to:
· Prevent such activities
· Educate consumers about scams and how to spot them
· Reimburse victims
Currently, most banks and card issuers in the western world have massive anti-fraud departments that:
· Run investigations
· Provide interim and sometimes final reimbursement to victims of fraud
· Recognize that people sometimes get fooled
It seems reasonable to leverage and expand – by law – the scope of existing anti-fraud infrastructure. This would be in addition to improving how exchanges deal with fraudulent activities perpetrated on these platforms; just not solely their responsibility. After all, the global card industry reported over USD30 billion in fraud losses in 2021; they definitely have the infrastructure to address fraud detection and prevention.
Otherwise, you risk forcing people to play crypto exchange wack-a-mole with a blindfold on and getting burned with each slam of the hammer.
As an interesting aside (and you’ll have to forgive the imperfect comparison) – the US Supreme Court recently ruled here and here that social media platforms (Google and Twitter in these cases) do not have liability for content distributed via their platforms, i.e., are not held liable for nefarious activities, not quite encouraged by these platforms, but certainly more wide-spread as result of platform usage. When characterized this way, it doesn’t seem fair or even efficient to hold crypto exchanges responsible for what occurs on them based on the mere existence of the exchange. The exchange should have to do something to encourage the bad actors or actions. Under the Court’s logic, a crypto exchange would have to aid and abet (somehow encourage) fraudulent activity to be held liable for it. Is listing an endorsement to buy? |
WHERE DOES RESPONSIBILITY LIE?
The FCA’s Consumer Duty could be useful here: just as manufacturers and distributors of financial products and services each carry responsibility to pursue and demonstrate good outcomes for consumers, so too should each actor in the digital asset ecosystem. Fiat-to-crypto on-ramps like banks and exchanges would each be regulated, in addition to card issuers; watchdogs would be a back-stop. A cross-hatch of protection is far more effective than singling out one or two actors in the chain and making them solely responsible.
I agree with the observations of Stephanie Tonkin – CEO of Australia’s Consumer Action Law Centre – when she says that local banks should pay a lot more to aid victims of scams at a time when they are enjoying record profits. Seems fair, no? These banks make billions of AUD from consumers; surely the banks can enact stronger protective measures to help these consumers and dole out some of that cash if scams persist. Seems reasonable to assume that the banks would want to keep customers happy and those billions rolling in.
SPECIFIC STEPS TO COUNTER CRYPTO SCAMS
Here are some specific steps that each actor in the crypto value chain can take to counter crypto scams:
The call to action for regulators
1. Enact sensible regulation by bringing crypto activities within a coherent regulatory framework.
2. Require actors to contribute to victim compensation funds.
Crypto exchanges
3. Crypto exchanges should verify the identity of their users to make it more difficult for scammers to create accounts.
4. Crypto exchanges should monitor for suspicious activity, such as large, unusual transactions or transactions that are made from different locations.
5. Crypto exchanges should report suspicious activity to law enforcement to help them investigate and prosecute scammers.
Banks and other financial institutions
6. Banks and other financial institutions should educate their customers about crypto scams and how to protect themselves.
7. Banks and card issuers could be mandated to expand their current anti-fraud practices to include crypto scams. This would drive up the knowledge of consumers and drive down the instances and costs of those falling victim to bad actors.
8. Banks and other financial institutions should work with crypto exchanges to share information about suspicious activity to help identify and prosecute scammers.
Governments and watchdogs
9. Governments can pass laws that make it more difficult for scammers to operate, such as laws that require crypto exchanges to verify the identity of their users and to report suspicious activity to law enforcement.
10. Governments can provide resources to help victims of scams, such as financial assistance and counselling.
Attack vectors are numerous; so too should be the countermeasures and the parties who enact them.
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