By Damian Lloyd, Senior Associate.
The financial landscape is seeing a surge in conflicts between banks and their customers over cryptocurrency holdings.
Banks have been demanding customers to disclose all their crypto assets, not just those evident in bank transactions. Some banks are insisting that clients liquidate their crypto and deposit the proceeds into bank accounts, threatening account lockdowns for non-compliance and debanking customers even with no notice. This stance raises significant legal and ethical questions, potentially paving the way for legal action, class action lawsuits or another Royal Commission.
Legal Considerations – When Behaviour Goes Bad
When customers open accounts with banks, they enter a legal relationship involving the deposit of Australian dollars in exchange for a debt payable by the bank on demand. For a basic bank account, the bank owes you money.
Despite this seemingly powerful position for customers, historical Royal Commissions suggest that banks often have the upper hand.
Economic Duress and Unconscionable Dealing
Legal concepts like economic duress and unconscionable dealing are important in these scenarios.
Economic duress involves illegitimate pressure exerted by one party over another, typically involving unlawful threats or unconscionable conduct (i.e., conduct that goes against conscience). Banks have been accused of this in the past.
Unconscionable dealing has three elements that must be present:
- a special disadvantage for one party,
- awareness of this disadvantage by the other party, and
- exploitation of this disadvantage.
Unsurprisingly, these concepts emerged because of the attitudes banks have taken in dealing with customers, and courts intervened to set the record straight in the past.
Application to Banks and Crypto
The increasing reliance on bank money over cash has amplified the banks’ economic and political power. Many customers depend on banks for business operations, often securing loans with personal or business assets. This dependency potentially places customers at a special disadvantage as there is no right to banking and many are debanked.
The demands from banks for crypto asset disclosures, access to wallets, and asset liquidation raise several questions:
- Are similar demands made for other asset classes? If not, why not?
- Who bears the tax burden upon asset liquidation? Will the banks cover taxes you are liable for if they demand you liquidate? Assume not.
- Does wallet access transfer control of crypto assets to banks, and what are the tax implications?
- Are banks engaging in unconscionable dealings and causing economic duress on customers?
Banks may defend these policies as part of due diligence and compliance with evolving financial regulations, but the harshness of their stance suggests that banks exert such control to further political agendas under the guise of broader regulatory compliance. Is it time for customers to push back?
The emerging conflict between banks and cryptocurrency holders presents complex legal challenges. While some bank actions might be justified under regulatory compliance, they could also mask more profound political agendas.
It is no surprise why customers are seeking decentralised alternatives to mediums of payment – they are tired of being bullied by the institutions that exist to help them facilitate their lives. As traditional finance and digital assets continue to intersect, the legal frameworks governing them will inevitably evolve, necessitating careful navigation through these uncharted waters.
Disclaimer: This material is produced by Cadena Legal, a NSW-registered legal practice. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such. Contact us here for advice.