Highlights of the past 12 months in the blockchain market in New Zealand include:

• Ministry of Business, Innovation & Employment (MBIE) Long-Term Insights Briefing on the Future of Business for Aotearoa New Zealand (the “MBIE Briefing Paper”);
• Report of the Finance and Expenditure Committee (FEC), August 2023 (the “FEC Report”);
• Government Response to FEC Report, 10 April 2024 (the “Government Response”);
• Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) Future of Money;
• NZDD stablecoin;
• Dasset exchange insolvency;
• Cryptopia insolvency case developments; and
• Financial Market Infrastructures Act 2021 (FMI Act) Standards, July 2023 (the “FMI Standards”).

During the past year, New Zealand’s blockchain market has seen significant activity. These efforts emphasise blockchain’s potential to transform the economy and create high-value jobs.

MBIE Briefing Paper

The MBIE Briefing Paper, which explores the future of business for New Zealand, identifies two key trends influencing productivity and well-being ‒ one being purpose-led businesses and the other being the use of blockchain technology. The MBIE Briefing Paper sees blockchain as transformative in helping businesses streamline operations, improve supply chain transparency, and ensure data integrity. It encourages partnerships between businesses and government to leverage blockchain for public services, regulatory compliance, and economic development.

FEC Report and Government Response

The FEC Report (including its comprehensive and commendable Final Advisers’ Report to the Finance and Expenditure Committee (the “FEC Advisers Report”)) and the Government Response both highlight the need for a regulatory framework that fosters innovation while ensuring consumer protection.

RBNZ Future of Money

New Zealand’s banking regulator, the RBNZ, sought submissions on its Future of Money – Private Innovation (Te Moni Anamata–Te Auahatanga) Issues Paper (the “Private Innovation Issues Paper”) (closed 3 April 2023) as as part of its Future of Money project. In response to submissions received in relation to the Private Innovation Issues Paper, in June 2023 the RBNZ noted it was ramping up monitoring of stablecoins and crypto-assets and published a summary of the submissions.

The RBNZ is continuing to explore a central bank digital currency (CBDC) and has opened consultation on a digital currency for New Zealand. The RBNZ is, like many other central banks, exploring “digital cash” to support:

• monetary and financial stability;
• social and financial inclusion; and
• safe and efficient ways to pay with the decreased use and availability of cash.

Dasset Insolvency

In February 2024, it was reported that New Zealand’s lead law enforcement agency for investigating and prosecuting serious financial crime, the Serious Fraud Office (SFO), is investigating Dasset, a New Zealand crypto-asset exchange that collapsed in August 2023, leaving NZD6.3 million in cryptocurrency unaccounted for. Dasset went into liquidation after losing its banking services resulted in numerous customer complaints about inaccessible funds. Liquidators have secured some digital assets, but the significant shortfall remains unresolved.

Despite Dasset promoting its registration on the Financial Service Providers Register (FSPR) and being subject to the register’s dispute resolution service (DRS), the DRS was unable to address customer complaints. Dasset was ultimately dropped from the DRS in July 2023. In addition to the SFO, New Zealand’s main financial markets regulator, the Financial Markets Authority - Te Mana Tātai Hokohoko (FMA) is also investigating.

NZ Dollar Stablecoin

Easy Crypto has launched the NZDD, a stablecoin backed one-to-one by the New Zealand dollar. Like the NZDS issued by Techemynt, the NZDD is designed to provide a stable and secure digital currency option that bridges traditional finance and the digital age.

Key Issues Impacting the New Zealand Blockchain Market in the Next 12 Months

• Regulatory developments – implementation of FEC Report recommendations and the Government Response will shape the market’s regulatory environment.
• Technological advancements – ongoing improvements in blockchain technology will continue to drive adoption, particularly in sectors such as banking and retail.
• Market trust – the fallout from the FTX and Dasset failures and developments in the Cryptopia liquidation case will influence investor confidence and market stability.

Impact of FTX and Other Recent Failures on New Zealand’s Crypto-Assets Market

The collapse of global exchange FTX and other notable insolvencies have increased regulatory scrutiny globally, including in New Zealand. In terms of direct links to New Zealand, it has been reported that a Dasset partner had exposure to FTX’s sister company Alameda Research.

The government and regulatory bodies such as the FMA, the Commerce Commission, the RBNZ and the Department of Internal Affairs (DIA) are focused on preventing similar insolvencies by enhancing consumer protection and market stability. The recent failures underscore the need for a robust regulatory framework and may lead to a more cautious investment environment. The Government Response to the FEC Report reflects this sentiment (at para 16).

FMI Standards

The FMI Act establishes a regulatory framework for financial market infrastructures (FMIs), multilateral systems that facilitate electronic payments and financial market transactions essential for a functioning financial system and the broader economy. In July 2023, FMI Act regulators RBNZ and FMA issued the FMI Standards.

Crypto-asset platforms that facilitate transactions, settlement, or custody of crypto-assets could be classified as FMIs (and subject to the FMI Standards and oversight from the RBNZ and the FMA) if they meet certain criteria.

As observed in the FEC Report, New Zealand’s blockchain industry has made significant progress and is gaining positive momentum. An ecosystem of cryptocurrency entrepreneurs and start-ups has emerged and is poised to participate in the next Web3 phase of global internet disruption. The government plays a crucial role in creating the right conditions for these to reach their potential, benefiting the New Zealand economy and its citizens.

Industry group BlockchainNZ recently recognised a number of market participants, including (i) New Zealand non-custodial exchange Easy Crypto; (ii) Immersve, for its Web3 partnership with Mastercard; and (iii) Everlasting, which focuses on safeguarding digital assets for inheritance.

The FEC Advisers Report also cites several other New Zealand industry players with a range of products and services.

Recently, Futureverse, which has garnered global investment and media attention and has been valued at more than NZD1 billion (according to Callaghan Innovation), integrated eight companies ‒ each contributing to a comprehensive, user-controlled “metaverse”.

In New Zealand, ownership of a digital asset whose transfer is determined based on an instruction given to a blockchain network using a private cryptographic key is determined by traditional common law and equitable property law principles, but these incorporate unique considerations specific to the nature of digital assets and blockchain technology.

Cryptopia

The judgment of Gendall J in Ruscoe v Cryptopia Ltd (in liq) (2020) NZHC 728 (Cryptopia) provides a comprehensive analysis of how crypto-assets are treated under New Zealand law.

Cryptopia was a New Zealand-based cryptocurrency exchange. It was liquidated following a hack in 2019 in which approximately NZD30 million of crypto-assets were stolen. This hack led to the company’s liquidation. The liquidators sought court directions on two key questions:

• whether cryptocurrencies could be considered “property” under the Companies Act 1993 (CA93); and
• if so, whether Cryptopia held the cryptocurrencies on trust for its account holders.

The court held that:

• the crypto-assets in question met the definition of “property” and so were capable of being held on trust; and
• based on the specific facts, Cryptopia held the cryptocurrencies on trust for its account holders (rather than as company assets subject to ordinary distribution under New Zealand’s liquidation procedure).

The combination of these two findings meant that the account holders were entitled to the benefit of the cryptocurrencies contained within their account when the company went into liquidation and that the company’s other creditors were not entitled to the value of those assets.

The court recognised crypto-assets as intangible property. This aligns with traditional concepts where intangible assets (eg, IP) are treated as property. Control over a digital asset, akin to possession in common law, is linked to the possession of the private cryptographic key. This mirrors the principle that control and ability to exclude others are key elements of property ownership.

Cryptopia highlights that in cases involving intermediaries (eg, brokers or custodians), traditional equitable principles of trusts and fiduciary duties can apply. The intermediary holds the crypto-asset on behalf of the owner, creating a trust relationship. Similarly, equitable remedies such as tracing can apply to crypto-assets if they are misappropriated or wrongly transferred, enabling owners to follow and potentially recover those assets (if the recipient public address holder can be identified).

Cryptopia demonstrates judicial recognition of the need to adapt traditional legal principles to address the unique features of digital assets. Gendall J acknowledged the novel characteristics of crypto-assets, such as their intangibility and reliance on cryptographic authentication, while also applying established property law principles to determine ownership and rights. As the judgment notes, many dealings involve intermediaries such as brokers or custodians, even in systems such as Bitcoin that are designed to avoid intermediation. What personal and proprietary rights a principal may have against an intermediary will depend on established rules of contract, tort and agency.

While clearly crypto-assets can constitute property in New Zealand (see 2.1 Ownership), as the FEC Advisers Report discusses, there is confusion generally regarding terminology and categorisation (even among key regulators the FMA, the RBNZ and the Inland Revenue Department (IRD)).

Since the FEC Advisers Report was prepared, Australia’s Treasury has issued a Token Mapping Consultation Paper (February 2023) (the “Token Mapping Paper”). This aims to develop a comprehensive regulatory framework for the crypto sector by creating a shared understanding of crypto-assets within the Australian financial services regulatory context. The FEC Report did not recommend token mapping for New Zealand, largely because New Zealand can benefit from the comprehensive work already done in Australia.

The IRD also proposes a token classification framework for taxation in its guidance.

FMCA/FSP Act Categorisations

The key categorisation for regulatory purposes is whether crypto-assets or related services are “financial products”, “financial advice products” or “financial services” under New Zealand’s primary financial markets statute, the Financial Markets Conduct Act 2013 (FMCA). The FMA is the regulator responsible for the FMCA.

“Financial products” include:

• debt securities (eg, instruments acknowledging debt);
• equity securities (eg, shares in a company or scheme interests);
• managed investment products (eg, interests in a managed investment scheme (MIS)); and
• derivatives (eg, contracts based on the value of an underlying asset).

The classification depends on the asset’s features and functions.

“Financial advice products” include:

• the above-mentioned financial products;
• a discretionary investment management service (DIMS);
• contracts of insurance;
• consumer credit contracts; and
• any other product declared by the regulations to be a financial advice product.

The FMA also has the ability (albeit not retrospectively) to designate a “security” as one of the classes of financial product. A “security” is an arrangement or a facility that has, or is intended to have, the effect of a person making an investment or managing a financial risk. This test is similar to that in the USA for “investment contracts” known as the “Howey test”.

The FEC Advisers Report comprehensively discusses financial products and financial advice products. It notes that unless the FMA has designated crypto-assets into a class of financial products, many of the FMCA rules will not apply if the crypto-assets do not meet one of the defined classes.

FMA guidance also details requirements for crypto-assets and associated services that are financial products (eg, requirements to register a product disclosure statement, meet fair dealing requirements, and appoint a licensed supervisor).

As discussed in 4.1.4 Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Requirements, the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the “AML/CFT Act”) and Financial Services Providers (Registration and Dispute Resolution) Act 2008 (the “FSP Act”) may apply to crypto-assets market participants if the entity is a Virtual Asset Services Provider (VASP) and/or provides services that constitute “financial services”. These are also discussed in the FEC Advisers Report.

New Zealand’s financial markets regulatory regime is comparable to Australia’s. As discussed elsewhere in this paper (eg, the cases discussed in 3.1 Enforceability), regulators in both countries are grappling with the applicability of the existing regimes to crypto-assets.

IRD guidance notes that crypto-assets that represent existing property or financial assets, and so mirror traditional securities such as shares or debt, are often called “security tokens” or “asset tokens”. Such crypto-assets could be classified as financial products under the FMCA. For further discussion see 2.2 Categorisation and 2.4 Stablecoins.

FMA guidance notes the following.

• A crypto-asset is an “equity security” if investors buy or have the option to buy, for example, a share in a New Zealand incorporated company.
• A crypto-asset linked to a commodity could be a “debt security” if investors can purchase it with money, they have the right to redeem the crypto-asset for money, and they are not the beneficial owner of funds from which redemption proceeds are paid. However, often asset tokens can be exchanged for the asset itself ‒ in which case, they are unlikely to be a “debt security”.
• “Utility tokens” (aka “application tokens”) are not considered “managed investment products”. (However, depending on the nature of the project, a non-fungible token (NFT) project could potentially be classified as a MIS.)
• A crypto-asset can be a “derivative” if the issuer or holder may be required to pay an amount or provide something else in the future, and the amount to be paid or the value of the crypto-asset is derived from the value or amount of something else, such as a commodity or asset.

One of the main criticisms of crypto-assets are that they are inherently volatile. “Stablecoins” are a type of crypto-asset designed to maintain a stable value. However, they achieve this stability through different methods. There are two main types of stablecoins:

• asset-backed stablecoins; and
• non-asset-backed (seigniorage) stablecoins.

Asset-backed stablecoins can be backed by fiat, other crypto-assets, or commodities. Non-asset-backed stablecoins, by comparison, utilise algorithms and smart contracts to manage supply and are usually not backed by physical reserves (and are often referred to as “algorithmic stablecoins”).

In New Zealand, distinctions between these types are important for regulatory and risk management purposes.

FMA Guidance

FMA guidance notes that crypto-assets backed by assets that give investors a right to redeem the token in exchange for the asset are not considered debt securities (unless the asset is cash). This is because the crypto-asset typically does not give an investor the right to be repaid “money”.

However, a crypto-asset linked to the value of a dollar or commodity could be a debt security if:

• investors can purchase it with money;
• investors holding it have the right to redeem it for money; and
• an investor holding it is not the beneficial owner of funds from which redemption proceeds are paid.

Although the crypto-assets themselves may not be classified as a financial product, offering, for example, asset-backed tokens through an initial coin offering (ICO) could constitute a financial service and so be subject to the FMCA and the FSP Act.

Specifically, FMA guidance suggests that stablecoins could be “financial products”, placing them within the jurisdiction of the FMA. The FMA assesses each stablecoin on a case-by-case basis. As with asset tokens, key considerations for whether a stablecoin is a financial product include the ability to purchase the stablecoin with money, the right to redeem that stablecoin for money, and whether someone holding the stablecoin is the beneficial owner of funds from which redemption proceeds are paid. No specific distinction is made between a fiat-backed stablecoin or an algorithmic stablecoin.

Privately issued New Zealand fiat stablecoin examples, NZDS and NZDD, are discussed in 1.1 Evolution of the Blockchain Market.

FMI Act

Stablecoins that are part of payment systems may fall within the FMI Act, but as yet none have been designated as “systemically important” under that Act.

RBNew Zealand Digital Cash

As discussed in 1.1 Evolution of the Blockchain Market, RBNZ is considering a “digital cash” CBDC. It is unclear what form this “electronic version of cash” will take but it could potentially be a government-/central bank-issued stablecoin.

As to the legal characterisation of NFTs, while it is possible that NFTs could be categorised as “financial products” and services in relation to them as “financial advice products” and “financial services” subject to the FMCA and the FSP Act, most FMA guidance suggests that NFTs may not be financial products and therefore carry risks because they are not regulated as such.

Curiously, IRD guidance suggests that NFTs are “like crypto-assets” but “are not the same as crypto-assets”. In terms of taxation, NFTs are classified as a service for Goods and Services Tax (GST).

Generally, payments can be made legally with cryptocurrencies in New Zealand. The FEC Report observes that lack of ability for businesses to use cryptocurrency in New Zealand would reduce the viability and competitiveness of such businesses.

A leading New Zealand legal commentary suggests that it has become more common for employees, especially in crypto-related industries, to be paid in crypto-assets. The IRD has issued rulings on taxing such payments as salary or bonuses, treating them as part of an employee’s income and subject to Pay As You Earn (PAYE) tax. However, under employment law (specifically, the Wages Protection Act 1983), wages must be paid in “money”, which does not currently include crypto-assets. See also 6.1 Tax Regime.

As far as the authors are aware, there are no specific legal/regulatory issues precluding the use of digital assets in collateral arrangements in New Zealand. Given the Cryptopia decision, it is clear that crypto-assets can be property. That being so, property-related statutes such as the Personal Property Securities Act 1999 and its related security interest registration regulation may apply to collateral arrangements concerning crypto-assets.

The UK Jurisdiction Taskforce (UKJT)’s Legal Statement on Cryptoassets and Smart Contracts (the “Legal Statement”) was released in November 2019 and aimed to provide legal clarity on the status of crypto-assets and smart contracts under English private law.

The Legal Statement notes that:

• in principle, a smart contract can be identified, interpreted and enforced using ordinary and well-established legal principles;
• English law is already capable of managing anonymous or pseudonymous parties;
• English law is fully equipped to deal with bilateral smart contracts and also those structured around decentralised autonomous organisations (DAOs);
• requirements that a contract be signed can be met using a private key to authenticate the document; and
• requirements that a document be in writing can be met where a smart contract’s code element is recorded in source code (in many but not all cases).

The UKJT Legal Statement has been effectively endorsed by the courts in New Zealand. In Cryptopia, the court relied heavily on the Legal Statement in its analysis. In terms of guidance on issues and the application of legal principles to smart contracts in New Zealand, the Legal Statement is a good first port of call.

The MBIE Briefing Paper highlights the growing and developing use of blockchain as a key trend for New Zealand businesses. The MBIE Briefing Paper also observes that New Zealand companies are already adopting smart contract technologies ‒ for example, musical festival Rhythm and Vines, as well as Voxels.

Smart contracts are also discussed in the FEC Advisers Report, which noted the following in summary.

• While many smart contracts involve crypto-asset transfers, they can also be used in supply chains to securely record and share information among participants, similar to current Enterprise Resource Planning (ERP) systems ‒ although, once recorded, the information is tamper-proof and can be made visible to other supply chain participants.
• However, the learned authors note that the term “smart contracts” is somewhat of a misnomer.
• Although some smart contracts can serve as legal agreements, many do not. By way of example, blockchain voting systems use smart contracts to record votes but are not legal contracts.
• For those that are intended to form a legal contract (for now at least), such contracts tend to be straightforward.

Given the increased use of smart contracts and ongoing development of blockchain, the law is having to adapt and evolve at pace. While New Zealand case law dealing with smart contracts is negligible, the New Zealand courts may take guidance from Australian decisions, including:

• Re Nasdaq Technology AB (2021) APO 39 ‒ where Nasdaq filed a patent application involving smart contract technology and the Deputy Commissioner of Patents found that the claimed invention was “not for a manner of manufacture”.
• ASIC v Web3 Ventures Pty Ltd (2024) FCA 64 (Block Earner) – where Australia’s regulator, the Australian Securities and Investments Commission (ASIC), sought declarations in relation to contraventions of the Corporations Act 2001 (the “Corporations Act”) that two of Block Earner’s products were “financial products”. The ASIC contended that the “Earner” and “Access” products are financial products because each product was a MIS or a derivative. If Earner or Access were financial products, then it was common ground that Block Earner had contravened the Corporations Act by carrying on a financial services business without holding an Australian Financial Services Licence (AFSL). Further, if either was a MIS, then Block Earner has contravened the Corporations Act by operating an unregistered MIS. It was held that the Earner product was a MIS, but not a derivative; however, the Access product was neither and therefore not a financial product.
• ASIC v BPS Financial Pty Ltd (2024) FCA 457 (Qoin) – the ASIC alleged that BPS carried on financial services business without holding an AFSL and that it made false and misleading representations in connection with the supply or use of a financial product. The court found that the Qoin Wallet was a “financial product” for the purposes of the Corporations Act (specifically, a “non-cash payment facility”). However, the court rejected the ASIC’s attempt to classify the entire Qoin blockchain that processed transactions as a “financial product” under Australian law. In this sense, the case could be seen as a precedent for how smart contract-enabled products should be legally assessed within Australia’s regulatory framework.

Some of the services provided in these cases could be classified as a “financial service” under the FSP Act. The FSP Act defines financial services broadly to include services involving the transfer of money or value, such as payment services. These services would require registration and compliance with relevant regulations to ensure consumer protection and adherence to AML requirements (see 4.1.4 Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Requirements). Similarly, false statements about financial services would be covered by the fair dealing provisions of the FMCA and/or the Fair Trading Act 1986 (FTA) (see 4.1.3 Marketing).

In New Zealand, there are a number of regulatory consequences for regulated firms and/or investment funds with exposure to crypto-assets.

Managed funds, including KiwiSaver funds, dealing with crypto-assets must comply with various regulatory requirements to ensure investor protection, financial stability, and market integrity. They are regulated primarily by the FMCA, which sets out comprehensive requirements for the registration, disclosure, governance, and ongoing compliance of MISs. These include the necessity for a licensed manager and a licensed independent supervisor to oversee the fund, as well an independent custodian to hold and safeguard scheme assets. These ensure proper conduct and protection of investors’ interests. Managers must provide clear and timely disclosure to investors, including a product disclosure statement (PDS) and annual fund updates. Additionally, managed funds must adhere to strict conduct and reporting standards, ensuring transparency and accountability in their operations.

New Zealand examples of funds with exposure to crypto-assets include Koura Wealth, Crossgate Capital and Vault.

Currently there is no regulatory sandbox for crypto-assets in New Zealand. The sandbox approach was endorsed in the FEC Report; however, it is not discussed in the Government Response and has yet to be implemented.

Guidance relating to VASPs and FATF is discussed at 4.1.4 Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Requirements regarding AML/CFT regulation. See also discussion regarding international approaches in Appendix Two of the FEC Advisers Report.

The following regulatory bodies are the ones most relevant to businesses or individuals using blockchain in New Zealand:

• the FMA is the primary regulator for entities offering financial products, financial advice products and financial services in relation to crypto-assets as well as FMIs;
• the DIA supervises New Zealand’s AML/CFT scheme;
• the Commerce Commission oversees the FTA and other consumer protection statutes;
• the RBNZ oversees crypto-asset activities of banks and FMIs;
• the IRD oversees the taxation of crypto-assets; and
• the SFO oversees serious financial crime.

The approaches of these regulators are discussed in the FEC Advisers Report.

See discussion in 4.1.2 Licensing and 4.1.4 Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Requirements regarding FSP DRSs and 4.1.3 Marketing regarding the ASA.

As already noted, New Zealand’s Parliament launched the Parliamentary Inquiry, leading to the FEC Report and Government Response. The MBIE, the CoFR and the MOJ are also taking action and providing guidance.

While there have been some important New Zealand judicial decisions that have played a role in interpreting and establishing law applicable to the use of blockchain in New Zealand, there is still little guidance from the New Zealand courts in relation to action by regulators against market participants. In this regard, New Zealand courts are likely to look to decisions in other Commonwealth jurisdictions for guidance. Some key New Zealand cases include the following.

Property/Trusts

Cryptopia

See 2.1 Ownership.

Relationship Property

Beck v Wilkerson (2019) NZFC 9883

• This was a relationship property case concerning the cryptocurrency Litecoin. The court was unable to determine which party had control of the Litecoin and both parties denied they could access their joint crypto wallets.
• The court held that the Litecoin was “obviously relationship property” and that, should either party be found to have profited from the Litecoin, that profit should be split equally. However, it declined to find that one party had deliberately diminished the value of the Litecoin by losing hardware or failing to report its loss to the police. The court was not satisfied on the facts that the disappearance of the relevant hardware was a deliberate action to diminish the value of the pool of assets.

Curtis v McBride (2020) NZFC 7791

• Relevant to crypto-assets in this relationship property dispute was the application for the appointment of an inquiror pursuant to the Property (Relationships) Act 1976 to give an opinion as to the value of digital assets, including cryptocurrency investments.
• The court also did not question that the cryptocurrency was a relationship property asset and stated that an inquiror would have been appointed had Mr McBride not offered instead to provide more discovery regarding the requested information.

Criminal Proceeds

Commissioner of Police v Vinnik — BC202360320

• Vinnik, a Russian national, operated the cryptocurrency exchange BTC-e, which was alleged to have laundered billions of dollars for cybercriminals and other illicit activities.
• New Zealand Police restrained NZDD 140 million in assets linked to Vinnik and BTC-e, making it the largest restraint of funds in New Zealand’s history.
• It is alleged that BTC-e operated without adequate AML controls, facilitating the laundering of proceeds from various criminal activities, including hacking, ransomware attacks, fraud, and drug trafficking.
• The seizure was part of a global investigation involving co-operation between New Zealand Police and the US Internal Revenue Service.
• The funds are subject to forfeiture proceedings under New Zealand’s Criminal Proceeds (Recovery) Act 2009. The Commissioner’s case is that the offences of money laundering and receiving have been committed in New Zealand, justifying the eWallet funds being restrained.
• This case demonstrates New Zealand’s ability to collaborate internationally to enforce AML regulations and prosecute cybercrime. It underscores the global nature of cybercrime and the importance of robust legal frameworks to manage and recover illicit assets.

Civil Procedure

MB Technology Limited v Ecomi Technology PTE Limited

• MB Technology brought proceedings against Ecomi in Singapore. It sought freezing orders over Ecomi and other respondents’ assets in New Zealand.
• MB Technology offered by way of security for costs 6.5 million GoChain, held in a PIN-protected offline wallet which it had deposited with its solicitors in New Zealand. Wylie J found that having no assets in New Zealand, MB Technology’s undertakings as to damages offered no real protection to the respondents.
• The Court of Appeal overturned Wylie J’s decision, allowing the crypto-assets to serve as security. Factors considered included a required security much higher than the claim due to the volatility of crypto-assets, urgency of the need for freezing orders, and the short duration of the freezing orders.

Insolvency

Ruscoe v Houchens (2024) NZHC 419

• Cryptopia’s liquidators sought directions on the distribution of assets, having come up with a proposal.
• As there was no power of sale in Cryptopia’s terms, the liquidators could not exchange the cryptocurrency to a fiat currency for distribution. 
• Therefore, distribution was directed to be implemented by verified account holders (who have completed an identity verification exercise) submitting a wallet address (also to be “screened to identify any risks such as money laundering or terrorist financing”).
• Distribution to account holders in countries where transfer of cryptocurrency may constitute an offence will instead take place via a fiat currency, with the cryptocurrencies being converted by the liquidators prior to distribution.

Relevant Judicial Decisions in Other Jurisdictions

These New Zealand cases are consistent with similar developments in the Singapore courts, which have found that crypto-assets fulfilled the four requirements to be classified as property and – in the context of determining whether crypto-assets could be the subject of an injunction and, specifically, whether the court had jurisdiction to grant injunctive relief against persons unknown and ancillary disclosure orders against foreign exchanges to assist in the tracing of stolen crypto-assets and identification of the thieves (CLM v CLN (2022) SGHC 46 (Cryptopia followed)) ‒ could be property capable of being held on trust, and could be classified as a chose in action, giving rise to the remedy of constructive trust (ByBit Fintech Ltd v Ho Kai Xin & Ors (2023) SGHC 199, which concerned allegations of employee theft of stablecoin Tether USDT).

The Australian cases referred to in 3.1 Enforceability may also influence New Zealand judgments moving forward. Another notable recent Australian case testing the regulatory boundaries relevant to crypto-assets is ASIC v Finder Wallet Pty Ltd (2024) FCA 228, where the court found that Finder did not provide unlicensed financial services in relation to crypto-asset-related product Finder Earn.

Unlike the ASIC in Australia, where there is a developing body of case law of enforcement action relating to digital assets, New Zealand decisions are scarce.

The FEC Advisers Report notes that there are four known cases of cryptocurrency-based pyramid or multi-level marketing schemes: OneCoin, Bitcoin Aotearoa, Lion’s Share, and Mobilio/Justbeenpaid.

Enforcement actions available to the FMA where it asserts a breach of the FMCA include the stop orders prohibiting an entity from certain conduct, and direction orders compelling an entity to take certain actions, mostly in relation to publishing of information. The FMA’s ability to use these enforcement actions in relation to crypto-assets turns on whether the assets are financial products or whether a financial service or financial advice product is being provided.

The only legal review conducted of a direction order or stop order involving digital assets was in Validus FZCO v Financial Markets Authority (2023) NZHC 1701. However, crypto-assets were only incidental to the issues with the stop order, so the case does not discuss the relationship between digital assets and financial products.

New Zealand’s approach to crypto-assets taxation has to date, according to the FEC Advisers Report, been “ad hoc and belated” with “sporadic amendments to the Tax Acts as they come”. Rather than keeping with this traditional approach, the FEC Report has recommended that the IRD explore ‒ in consultation with the crypto-assets industry ‒ whether tax incentives for crypto-assets service providers are necessary or appropriate, in addition to continuing work to provide clarity around the treatment of crypto-assets within the tax system, in order to encourage investment of capital in New Zealand and enhance the competitiveness of the New Zealand tax system.

The most significant legislative change to date has been with the Taxation (Annual Rates for 2021‒22, GST, and Remedial Matters) Act 2022, which affirmed that crypto-assets are not subject to GST and are generally “excepted financial arrangements” ‒ meaning they are generally (though not as a rule) not subject to tax on unrealised gains. New Zealand, like many countries, faces challenges in the classification of different crypto-assets within its existing tax system.

The IRD has issued helpful guidance on taxation of crypto-assets. It notes, among other things that, crypto-assets are treated as a form of property for tax purposes. The IRD guidance includes a number of “Tax Technical” issues papers and rulings covering a range of topics, such as:

• tax treatment of crypto-assets received from blockchain forks;
• income tax – salary and wages paid in crypto-assets;
• taxing crypto-assets income;
• income tax – bonuses paid in crypto-assets;
• working out your crypto-asset income and expenses;
• crypto-assets and GST; and
• staking services.

Currently in New Zealand there are no “crypto-specific” ESG/sustainable finance requirements applicable to crypto-assets. However, one of the terms of reference for the Parliamentary Inquiry was “to understand the environmental impact of “mining” cryptocurrencies” and this issue is addressed in detail in the FEC Advisers Report.

Currently there are no bespoke privacy laws relating to crypto-assets or blockchain-based products or services in New Zealand. Privacy generally is governed by the Privacy Act 2020 (Privacy Act).

With the exception of the “Clean Slate Scheme” relating to some criminal offending, the “right to be forgotten” does not exist in New Zealand.

Furthermore, under the Privacy Act, people in New Zealand have the right to access personal information held by New Zealand or overseas agencies (including unincorporated bodies) carrying on business in New Zealand and the right to correct any inaccurate information. The inherent immutability of blockchain, which ensures that once data is recorded it cannot be altered or deleted, conflicts with the right to correction (or right to be forgotten) under privacy laws. This also presents for New Zealand-based participants of DAOs, which could be considered unincorporated bodies.

The Privacy Act includes provisions for the protection of personal data transferred outside New Zealand, requiring comparable privacy protections in the destination country. As they can be decentralised and distributed across multiple jurisdictions, blockchain networks can complicate compliance with laws regulating international data transfers.