Global menu

Our global pages


Crypto-matters - Volume 1: Legal developments on crypto-assets and Blockchain technology

Crypto-matters - Volume 1: Legal developments on crypto-assets and Blockchain technology
  • United Kingdom
  • Crypto assets
  • Financial services and markets regulation
  • Financial services and markets regulation - Hedge funds
  • Financial services


Bringing our clients the latest important legal developments related to crypto-assets and the use of Blockchain technology in financial services and markets

Legislative developments

There are currently indications of legislative developments to incorporate cryptocurrencies. In particular, there have been moves to incorporate tokens as a form of financial instrument under MiFID, and as well as to expand the 5th Money Laundering Directive (“MLD5”) to apply to cryptocurrencies.

The Markets in Financial Instruments Directive (“MiFID”) 2

There are currently nascent moves to incorporate cryptoasset as a type of specified investment within the broader remit of MiFID 2. This flows from advice the European Securities and Markets Authority gave on Initial Coin Offerings and Crypto-Assets, which noted a gap between the treatment of financial instruments and cryptoassets which fall outside the regulatory framework.

Although this development is in its early stages, it does make sense when tokens as used as an investment vehicle, for example in relation to trading, settlement, custody and use as a fund raising mechanism. However, if the MiFID regulatory regime is applied more broadly, to the conduct of tokens in general, then, given that there are different types of tokens fulfilling different purposes, there is a risk that the MiFID regime would favour some tokens over others. In addition, for tokens which act as vouchers to an underlying asset, there is a risk of regulatory arbitrage between selling the underlying asset and a token representing that asset.

Money Laundering Directive (“MLD”) 5

Expanding MLD5 would create a specific obligation for cryptoasset exchanges and wallet providers to identify their customers, monitor transactions or report suspicious activity. Currently, HM Treasury are consulting on the incorporate of MLD5 into English law, and in particular is considering the scope of “gold-plating” its provisions, i.e. expanding their application to apply to crypto-to-crypto exchange service providers, peer-to-peer crypto-to-crypto and crypto-to-fiat exchange service providers, crypto-fiat ATMs, issuance and distribution of new cryptoassets via Initial Coin Offerings, and the publication of open-source software of any type.

For exchange tokens and token generation events, the new MLD5 obligations make sense, particularly where those tokens can be used to buy products. However, where a token is a utility token acting as a voucher for an asset, then it is harder to justify applying money laundering requirements to that token when they do not apply to the relevant asset. Also, as regards the provision of open-source software, applying the MLD5 obligations will be hard to enforce (as the genesis of open-source solutions do not tend to be jurisdiction specific), and, given that they involve the sharing of information, it is difficult to determine how applying MLD5 would be beneficial.

Case law developments

B2C2 Ltd v Quoine Pte Ltd [2019] SGHC (I) 03: a decision of the Singapore Supreme Court on the application of contractual and trust principals to Bitcoin and Ethereum


This case involved an action in the Singapore International Commercial Court for breach of contract and breach of trust. The Defendant, Quoine, was a Singapore-registered company which operated a currency exchange platform enabling third parties to trade virtual currencies for other virtual currencies or for fiat currencies such as Singapore or US dollars. Quoine undertook trades relating to the sale of Ethereum in exchange for Bitcoin, which trades were automatically performed by the platform in response to orders from the Plaintiff, B2C2. Due to a defect in Quoine's software, the trades were executed, with no human intervention, at a rate approximately 250 times the Ethereum and Bitcoin market exchange rate, in favour of B2C2. The next day Quoine's Chief Technology Officer reviewed the trades, realised a serious error had occurred, and reversed them.


B2C2 claimed on the basis that the decision to reverse the trades was, firstly, a breach contract, and, secondly, a breach of trust. Quoine claimed argued that the trades were void and, therefore, it was entitled to reverse them. The court found in favour of B2C2 on both these points.

As regards breach of contract, as parties to the trades were then notified of them in the usual way, and the terms and conditions of the platform expressly stated that "once an order is filled, you are notified via the platform and such action is irreversible", the Court found that there had been a breach of contract. Quoine argued that, despite this clause, the contract was void for mistake, specifically that there has been a unilateral mistake by Quoine, which means that a contract is void where one of the parties (Quoine) makes a mistake and the other party (B2C2) knows of his mistake. To determine this point, the Court considered it necessary to have regard to the intention of the programmer at the time of writing the program, and concluded that the counterparties to the trades had held the mistaken belief that they could never take place at the rates that were in fact applied. However, as B2C2 itself did not have knowledge of this mistaken belief, the trades were not void for mistake.

As regards the claim for breach of trust, this depended on whether a trust had been created. The creation of a trust requires three elements to be fulfilled: certainty of intention; certainty of subject matter; and certainty of object. The key issue, therefore, was whether the Bitcoin and Ethereum were capable of being considered as property in order to give certainty of subject matter. The Court’s view was that cryptocurrencies are intangible property, being "definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability." As, therefore, the cryptocurrencies were held separately in a single offline wallet, rather than as part of Quoine's trading assets, the Court determined that there was certainty of intention as Quoine intended to hold assets on trust for individual users of the Platform, and certainty of object as the beneficiaries were discernible from their individual member accounts.

Lastly, it is worth noting the remedy sought by B2C2, who requested specific performance coupled with damages, due to the volatility of cryptocurrencies making their value difficult to determine. This was denied on the basis the Courts are accustomed to assessing damages in relation to volatile assets, and so could do this for cryptocurrencies.


This case provides useful clarification regarding the applicability of trust law to exchange tokens, such as Bitcoin, however it is worth noting that the English courts have previously held that assets which exist purely in electronic form are not property. In particular, it is worth noting that this case concerned Bitcoin and Ethereum, which are tokens operating on the basis the entry on the blockchain determines the asset itself (and as such the value of the token is the entry in itself), whereas, as is the case for example with many utility coins, if the token represents an external asset (meaning that the value of the token is derived from the external asset), there is a greater chance that a court may find the role of the token as being an external register of the asset, rather than property in its own right.

To read the case report on the SICC website, click here.

Ang v Reliantco Investments Ltd [2019] EWHC 879 (Comm): a case on the application of investor protection under general law to Bitcoin


Ms Ang, the claimant, was a wealthy individual who invested in Bitcoin futures through the Reliantco's, the defendant’s, online platform. She claimed that Reliantco had wrongfully terminated her account and brought proceedings in England, and that, even though her contract with Reliantco contained a Cyprus jurisdiction clause, she could rely on the Recast Brussels Regulation (1215/2012) as a consumer to bring proceedings in the member state where she is domiciled, notwithstanding a jurisdiction agreement.


The High Court held that being wealthy does not prevent a person being consumer, and that the amounts involved in the case, and the fact the claimant was making a speculative investment, did not mean the claimant was not a consumer. Rather, determining whether a person is a consumer is a fact specific assessment, taking account of the nature and pattern of investment. The court however indicated that the spread, regularity and value of investment activity was not determinative, rather the purpose of the activity must be considered.


Although the question as to whether an investor is a consumer for the purposes of the Recast Brussels Regulation is subject to conflicting judgments, the most interesting aspect of this case is that it deals with principals applicable in any investment context, and as such the fact that the case involved Bitcoin was treated as incidental. The case also shows that, regardless of any formal regulatory regime, the general principals of investor protection that apply under general law are still relevant (noting that this case went to claiming jurisdiction, a procedural question, rather than a substantive question).

To read the case report on BAILII website, click here.

Other developments

After clarifying how security tokens fit within the existing regulatory perimeter, the FCA has indicated that it will provide advice to HM Treasury with a view to extending the regulatory perimeter to include utility and exchange tokens. As noted above, the core issue here will be how the FCA intends to distinguish between investment tokens as other assets.

More broadly, the FCA has affirmed its intention to use Regtech, and will explore and experiment with industry around how to improve the method of data exchange between industry and regulators, will continue to work around new technology solutions to achieve better, more cost-efficient outcomes in relation to anti-money laundering and financial crime compliance; and will look further at how technology can help firms and consumers achieve positive financial outcomes. Part of this is the continued development of the use of sandboxes, with the new Global Financial Innovation Network, which is chaired by the FCA having just accepted its first eight firms into its cross-border regulatory sandbox.

How Eversheds Sutherland can help

We have an award winning crypto assets practice, with our work being “Highly Commended” at the Financial Times Innovative Lawyers Europe awards 2019, and were runners up for the Banking and finance Team of the Year with the British Legal Awards (Legal Week).

Since advising on the first successful initial coin offering in the United Kingdom, we have been at the forefront of advising firms on crypto assets, blockchain and the FCA sandbox process, and were the only law firm to submit evidence to the Commons Select Committee.

We take a flexible approach to providing advice, taking a cross-sectoral and practical approach tailored to the diverse needs of our clients.