Crypto Exchange Account Frozen? What to do if you cannot access your cryptoasset exchange accounts.

When a centralised exchange account is frozen or put under review, the consequences can be immediate and serious. A user may be unable to access cryptoassets, trade or convert cryptoassets, or withdraw fiat from their account. In some cases, the amounts held at frozen exchange accounts may be substantial, and extended restrictions on the account can place wider transactions at risk, such as a pending property purchase. It may also expose the user to loss through adverse market movements, missed trading opportunities or knock-on consequences where frozen funds were intended to satisfy time-sensitive obligations such as tax liabilities, business payments or settlement of invoices.

Why might my exchange account be frozen?

In practical terms, a frozen exchange account does not automatically mean misconduct by the user, nor does it necessarily mean the exchange has acted unlawfully. Exchanges operate in a high-risk environment, and they are expected to monitor user accounts and transactions for sanctions exposure, suspicious activity, fraud indicators and wider compliance risks.

The difficulty for users is that the exchange’s communications are often sparse, highly standardised (and often automated), and usually give very little insight into what has triggered the restriction or how long it is expected to last.

In most cases, the exchange’s review is legitimate and can be resolved by providing the required information or documents to satisfy their checks. In other cases, the delay can become excessive and disproportionate.

An account freeze can take a number of different forms. Sometimes the user can log in and still see their account balances and trades but are unable to withdraw cryptoassets for fiat funds. Sometimes fiat is accessible, but crypto is not, or vice versa. In other cases, the account is effectively locked down and no account information can be accessed. The nature and severity of the restrictions can differ, but the commercial effect is often the same in that the user is prevented from dealing freely with the assets they hold on the exchange platform.

There are a number of common reasons why account freezes and restrictions are imposed. One is transaction monitoring where deposits from wallets associated, rightly or wrongly, with risk indicators may cause an internal flag and compliance review. Another is source of funds or source of wealth concerns, particularly where there are substantial deposits of cryptoassets onto the exchange which the exchange cannot accurately attribute to the users trading history. This is often common for users who acquired cryptoassets in the early years of the market from exchanges that are now defunct and subsequently held those assets in self custodial wallets before depositing into a new centralised exchange account. What may be an obvious provenance trail to the user can look incomplete to an exchange’s compliance team.

A further common reason is inconsistencies in account information, for example, different names, patterns that do not fit the exchange’s own risk profile, or incomplete/outdated Know Your Client (KYC) records.

What can I do if my exchange account is frozen?

Firstly, an important consideration is to ascertain the basis on which the exchange holds the user’s assets. In some cases, the exchange may be acting as a custodian, holding assets for the user rather than as its own property. In other cases, particularly in relation to certain lending, rewards or yield products, the arrangement may not be custodial in nature and more of a title-transfer model, under which the user’s rights are better characterised as a contractual claim for those assets (which is more akin to how deposits are held at a bank). 

Accordingly, the question of what rights a user has against an exchange will often be subject to consideration of the relevant terms and the way in which assets were actually held by the exchange.

One of the first things to do when realising an exchange account has been frozen or restricted is to contact the relevant exchange and ask why. As mentioned above, communications from exchanges can often be sparse, and there may be a complete disconnect between the customer services representatives and the internal compliance team which has imposed the restrictions.

If the exchange does communicate a clear reason for the restriction, and there are steps that can be done to assist their enquiries or procedures, then every effort should be made to cooperate with the exchange. Often such restrictions are purely administrative and assisting the exchange with the provision of information and documents can resolve the issue.

In other cases, the exchange may not give a valid reason or communicate at all. While exchanges are entitled to make enquiries and restrict accounts while those enquiries are being made, they are not necessarily entitled to do so indefinitely without a compelling reason, for example, a court order stating such.

In such a scenario, the next step may well be instructing lawyers to engage with the exchange. This may involve pressing for clarity as to the reason for the restriction, narrowing the actual issues in dispute, presenting source of funds information in an organised form, and making clear that the user expects the review to completed within a reasonable timeframe as well as sign posting potential adverse consequences to the user in relation to adverse market movements affecting their cryptoasset portfolio, and loss of opportunity in some cases.

A well framed letter from lawyers can assist in escalating the matter from the customer service helpdesks to the relevant compliance team who have imposed the restrictions and open a channel of dialogue to try and resolve the issue. Where this does not resolve matters, and there remains no clear or justifiable reason for the restrictions, the dispute may need to be escalated by more formal legal correspondence and, in some cases, by legal proceedings. Depending on how the assets are held (as mentioned above), a user may have a personal contractual claim, a proprietary claim, or a combination of both.

Practical Steps to take if your exchange account is frozen

If you discover your exchange account has been frozen or restricted, it is important to act methodically as the steps taken in the early stages can make a material difference in preserving your position and can affect how quickly the issue is resolved.

• Confirm the precise nature of the restriction or freeze

Try to establish the nature of the exchange freeze and why. Sometimes this will be made plainly obvious on your account dashboard when logging in, in some cases you may need to log an incident or help enquiry with the exchange.

Do make a note of what you can and can’t do on the exchange. For example, are you unable to withdraw cryptoassets, unable to withdraw fiat, prevented from trading, or locked out of the account entirely.

• Put together evidence

Take screenshots of relevant information pertaining to the freeze such notices, banners, error messages and account balances. Save all emails, live chat messages, and support tickets. Download transaction histories, withdrawal records, and account statements where possible.

• Review the exchange’s terms and any notices

Check what the exchange is entitled to do in relation to account restrictions, compliance reviews, custody of assets, and suspension of withdrawals.

• Gather supporting documentation

Start collating together material that may help explain the provenance of assets currently held in the account and the history of the account. This may include exchange statements, bank statements, wallet addresses, blockchain transaction hashes, historic purchase records, and correspondence relating to transfers.

• Keep a record of timing

Note when the restrictions or freeze first arose, when you contacted the exchange, what information has been requested, what you have supplied, and when the exchange has responded (if at all).

Delay can become important, particularly where the freeze is affecting wider transactions or exposing you to market volatility and loss.

• Consider any applicable wider consequences

Think beyond the account itself. If the frozen assets were intended to be traded for another asset, liquidated and withdrawn, or were intended for a purchase, business obligation or investment, the exchange should be made aware of that at an early stage.

• Escalate promptly if the freeze becomes prolonged or unjustified.

An exchange is entitled to carry out enquiries, but not necessarily to do so indefinitely or without meaningful explanation. If the restriction or freeze continues without meaningful engagement from the exchange or without a reasonable date for them to complete their enquiries, then it may be necessary to escalate matters through formal correspondence, and in appropriate cases, legal proceedings.

We can help clarify the issues, present supporting information in a coherent way, and assess whether the matter remains a compliance review or is becoming a legal dispute and if so, what recourse you may have.