Man Loses Access To Own Crypto Currency

A man who lost access to his own crypto currency because he couldn’t locate a backup file has not had his complaint upheld, after the Insurance & Financial Services Ombudsman Scheme (IFSO Scheme) found that the crypto currency platform was not liable for the loss.

Michael* created a crypto currency wallet using a crypto currency platform. Shortly afterwards, he was targeted by scammers who instructed him to open the wallet and transfer crypto currency to them. His bank alerted him to the scam, and Michael stopped making transfers to the scammers. $11,000 of crypto currency remained in his digital wallet.

When Michael later attempted to access his wallet, he was unable to do so. He was prompted to recover the wallet using a backup file, but he couldn’t locate one and so couldn’t regain access to his crypto currency.

Michael believed the platform should reimburse him for the funds he couldn’t access, and made a complaint to the IFSO Scheme.

He argued that he wasn’t adequately informed of the need to back up the wallet, and that there were no clear warnings or prompts about the risks of not enabling recovery options.

Karen Stevens, Insurance & Financial Services Ombudsman, says that crypto currency platforms have an obligation under the Consumer Guarantees Act 1993 to exercise reasonable care and skill when providing a service to consumers.

“The key consideration for us was whether the platform had exercised reasonable care and skill when providing Michael with information about the wallet and the necessity of backing it up,” says Stevens.

The IFSO Scheme looked at the information and prompts shown during the wallet setup process, additional information available through links on the setup screens, the platform’s actions once Michael reported the issue, and the platform’s terms of use.

Evidence showed that, during setup, the app displayed screens explaining that the wallet should be backed up, the backup was the only way to recover funds if access was lost, and the platform could not access or restore wallets on behalf of customers.

The setup screens also included links to further information explaining how wallet backups work and the consequences of not completing one.

“We found no evidence that the platform failed to exercise reasonable care and skill. The information about backing up the wallet was presented during setup, and additional explanations were readily available.”

“We also noted that the platform took reasonable steps to assist Michael once the issue was identified, but recovery was not possible without a backup file. The platform’s terms clearly stated that customers are responsible for backing up their wallets and safeguarding access,” says Stevens.

Michael’s complaint was not upheld, and the platform was not required to compensate him.

Stevens says that this case serves as a reminder to consumers.

“Cryptocurrency platforms operate differently from traditional banking services, and it’s vital that consumers pay close attention to setup instructions and understand the potential consequences if those steps are not followed,” says Stevens.

The IFSO Scheme resolves complaints about insurance and financial services, and its service is free for consumers. Consumers can make a complaint to the IFSO Scheme at www.ifso.nz or by calling 0800 888 202.

*Name has been changed

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