The number of cryptocurrency businesses in the crosshairs of the UK’s financial watchdog leapt by 74 per cent in the past year, as the Financial Conduct Authority estimates that consumers have lost at least £27m in crypto and foreign-exchange scams.
The FCA now has 87 inquiries on its books into crypto companies, compared with 50 this time last year, according to recent data. The number includes early-stage scrutiny as well as full-blown enforcement investigations.
David Heffron, a partner at Pinsent Masons, the law firm, who gleaned the data from the FCA, said that the increased scrutiny “reflects the FCA’s increasingly hands-on and no-nonsense approach to enforcing the law in the cryptocurrency market”.
“For cryptocurrency businesses acting lawfully these statistics will be encouraging — they want bad actors pushed out.”
The regulator declined to comment on the statistics.
The FCA is taking a tough line on companies that punt cryptocurrencies and related products on the public, which may be more susceptible to get-rich-quick schemes in the wake of bitcoin’s rise above £10,180 in June, before it plunged back to about £6,600 now. Scammers can easily set up a cryptocurrency business, as they require almost no physical assets.
Scams often involve social media, fake celebrity endorsements and pictures of luxury items. Victims are then directed to professional-looking websites, where they are persuaded to make their first investment. Fraudsters encourage victims to invest more with the false promise of greater profits. However, eventually the returns stop, the customer account is closed and the scammer disappears without further contact.
According to earlier FCA research, crypto customers are most likely to be middle- to upper-class men aged between 20 and 44.
Currently, the transfer, purchase and sale of cryptocurrencies is not regulated in the UK. That means that often consumers are not protected by the UK’s Financial Services Compensation Scheme if things go wrong.
However, companies that sell regulated investments with an underlying cryptocurrency element may need FCA authorisation to do so, depending on their activities.
In July, the watchdog announced its plans to ban derivatives on cryptocurrencies for retail investors, warning that it is “impossible” to value them reliably, and that trading them is “akin to gambling”.
The regulator highlighted that consumers faced being charged high fees by the industry, estimated by the FCA at £75m over the 19-month period that it had put cryptocurrencies under review. It also had concerns about the impact of “widespread” financial crime.
That was underscored by previous statistics from the FCA, which showed that the reported number of cryptocurrency and foreign exchange scams had more than tripled in the past financial year to more than 1,800.