Regulation
As WazirX comes under fire, calls for legal remedy and regulation grow louder | Company News
Calls for stricter regulation and legal remedies for users to recover their funds have intensified after India’s leading cryptocurrency exchange WazirX suffered a data security breach, leading to the theft of digital assets worth $230 million.
Last week, the cryptocurrency exchange confirmed the security breach on its platform that led to the theft of about 50% of its total assets. Although WazirX called the event a “force majeure” beyond its control, the company said it is trying to locate and recover the lost funds.
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Recovering the proceeds from a sophisticated cyberattack on its platform may not be an easy task, crypto executives and people familiar with the development said.
“It is difficult to recover stolen cryptocurrencies as many of them are converted into other tokens, and since cryptocurrencies are transacted internationally, they can be transferred to any exchange in any country. The good thing is that the transactions can be tracked and in a few past cases, they have also been recovered,” said Ashish Singhal, co-founder of CoinSwitch, a cryptocurrency exchange.
He noted that recovering funds after a cyberattack of this magnitude was a tedious process as the stolen amounts can remain in a wallet for many years.
In the backdrop of a lack of regulatory environment for crypto in India, it is becoming difficult to stop transactions involving stolen tokens.
“Although it is traceable, you still cannot stop its use everywhere. That becomes the real problem because there will always be a decentralized platform where these tokens can be converted from one to another, or from one wallet to another,” said Edul Patel, CEO of Mudrex, a cryptocurrency platform.
Legal experts who follow the industry believe that users who have lost their funds can turn to the country’s consumer protection laws for redress.
“As far as consumers are concerned, there is no specific law that you can refer to in case of a cyber attack. But in any case, consumer protection laws would be applicable if negligence is found on the part of WazirX, claiming deficiency in its services, depending on the remedies sought by customers under the Information Technology Act, 2002 or the Arbitration and Conciliation Act, 1996,” said Navodaya Singh Rajpurohit, legal partner, Coinque Consulting and founder, Pravadati Legal.
On Sunday, WazirX announced a reward program to recover and freeze stolen funds. The company promised that it would reward those who assist in the recovery with a bounty set at 5% of the amount recovered under the program.
“In response to the cyber attack, we have filed an online complaint with the police and are currently processing a physical complaint. We have reported the incident to the Financial Intelligence Unit (FIU) and CERT-In. We are contacting over 500 exchanges to block the identified addresses,” WazirX said in a statement.
At the same time, as the EU budget approaches, calls for greater regulatory clarity for the sector are growing louder.
“What should now come out of all this is that there should be discussions around active regulations, making self-custody a real possibility for people, allowing decentralized exchanges to transact, which is one of the ways to keep a user’s money secure,” Mudrex’s Patel said.
Local crypto firms had earlier suggested that regulating the sector may require the involvement of multiple agencies, given the approaching deadline to develop a unified framework, Business Standard reported this month. Industry participants said creating comprehensive legislation through a single regulator could be complex and take a long time before the 2025 deadline.
“This incident could potentially lead to regulatory changes in India. As of now, no regulatory body has taken the initiative to regulate cryptocurrencies in the country. While the Financial Intelligence Unit (FIU) exists, its primary mandate is to prevent money laundering, not to combat cyber attacks, which may limit its jurisdiction in this matter unless the investigation reveals that money was laundered through this cyber attack,” said legal expert Rajpurohit.
Clues:
WazirX Suffered Security Breach, Losing $230 Million
It is difficult to recover lost funds because the transactions are complex
Calls for regulatory clarification are growing as the sector is not yet directly regulated
WazirX Announced Bounty Program to Track, Trace and Recover Funds