Commercial Litigation Insights: From Banks To Blockchain: Could Exchanges In Receipt Of Stolen Digital Assets Be Liable As Constructive Trustees?

The lines between banks and cryptocurrency exchanges are blurring as an increasing number of digital transactions intersect between traditional and decentralized finance. Major payment processors are incorporating blockchain technology into their networks and traditional financial institutions are offering cryptocurrency exchange-traded funds. The regulatory landscapes have also converged with Canadian virtual currency exchanges being required to register with FINTRAC as money services businesses and being subject to the same reporting requirements as banks for suspicious transactions under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.

With these intersections between traditional banking and decentralized finance comes new vulnerabilities as external and internal factors pose risks of data breaches, fraud, and regulatory non-compliance. One such vulnerability that is new to decentralized finance, is the risk of being held liable as a