Cryptocurrency exchanges have come a long way since the days of Mt.Gox, with there now being publicly traded companies such as Coinbase offering platforms where you can buy and sell digital assets with confidence. As more regulation has come to the sector, it has also led to cryptocurrency exchanges having to lock user accounts for one reason or another, and if you’re someone whose account has been locked then this article may help you understand why. Let’s jump in.
Five Reasons Cryptocurrency Exchange Locks Accounts
Below we’ve noted five reasons why cryptocurrency exchanges lock accounts, in no particular order. Many of these reasons overlap with each other, and there may be multiple reasons why your account has been locked.
Regulatory Compliance
The most obvious reason that a cryptocurrency exchange locks accounts is due to regulatory compliance. Whether that means that your account is from a jurisdiction that the platform can’t legally offer services to, the documentation you provided wasn’t sufficient, or because your account is suspected of illicit activities, those are all regulatory compliance reasons.
The most common regulatory reason that your account is locked on a crypto exchange is because the platform no longer offers services to your country, as many exchanges are now having to be much more compliant with local laws than in earlier years.
Security Measures
If any exchange is concerned that their platform has been compromised, whether many accounts or just one, then it may lock users accounts in order to prevent your funds from being stolen by hackers. The exchange locks accounts as a security measure to prevent anything from being withdrawn.
However, in cases like FTX Exchange, the platform locked users accounts because FTX didn’t have the funds to actually process all the withdrawals, not due to there being a security issue. Platforms like Binance have a reserve fund for users in case of an actual security breach and loss of user funds.
Fraud Prevention
Much like with if an exchange is concerned that it has been compromised, if it suspects an account is engaging in fraudulent activities then it will lock those accounts. Typically in order to have your account locked for something like this, you’d have to be doing transactions with sanctioned accounts or addresses. As long as you’re not engaging in anything fishy, it’s unlikely your account will be locked for fraud prevention purposes.
However, if you report that you think the account might be compromised, the exchange can lock the account on your behalf until that issue is resolved.
AML/KYC
When you sign up for a cryptocurrency exchange, you’ll likely have to undergo anti-money laundering (AML) and Know Your Customer (KYC) procedures which are used to verify your identity. If the exchange is finding there to be issues with the documentation or information you provided, they may lock your account until the issue is resolved.
It’s also worth noting that if you signed up for an exchange when it didn’t require KYC, and it now does, you may not be able to sign up for your jurisdiction depending on where the exchange can operate, and your account may be locked. The same is true if the platform used to offer services to your jurisdiction but no longer does.
For example if you were a Canadian, you could use Binance for a long time, but due to regulatory changes, Binance no longer offers services to Canadians (image below). This means Canadian accounts are now locked on Binance and they can only liquidate holdings.
Violation of Prohibitions for Platform
Whenever you sign up for a cryptocurrency exchange, there are terms and conditions which you are agreeing to, including what you can use the platform for. If you violate any of these terms, for something such as using the account for gambling or as a service like a security broker, then those are violations which will cause your account to be locked.
What to Do If Your Account is Locked?
The most obvious thing to do when your account is locked is to contact the customer service of the platform. There are certain situations where this will likely solve the issue of your account being locked.
However, if your account is locked for something like being in a restricted jurisdiction, to prevent fraud, or as a security measure to protect all users, it’s highly unlikely the platform will unlock your account very quickly. If you’re been doing something illicit, then it’s definitely not going to be unlocked anytime soon.
Closing Thoughts
Crypto exchanges don’t lock accounts all that often. There has to be a reason for them to do so, whether suspected fraud, a hacker, or being from the wrong place.
In most cases, the lock will be temporary, but for some it will be permanent. Though it may be annoying to no longer be able to use your favorite exchange due to regulatory changes, there are many options out there.
