The number of reports to the City regulator of alleged cryptocurrency scams more than doubled last year.
The Financial Conduct Authority received 6,372 alerts about suspected crypto frauds last year, up from 3,143 the year before, according to a response to a Freedom of Information request.
The rise of bitcoin and other cryptocurrencies, as well as the exchanges on which they can be traded, has attracted interest from ordinary investors hoping to make significant returns. Crypto-related fraud has grown alongside this growing interest. The most notorious example was the £4 billion OneCoin scam, a million-person pyramid scheme masquerading as a cryptocurrency investment. Other issues include the abuse of electronic wallets and crypto exchanges to steal people’s money.
The FCA said that last year an estimated 2.3 million adults held cryptocurrencies — alternative digital currencies — up from 1.9 million in 2020.
The OneCoin case is an illustration of difficulties the FCA has had dealing with scams in this area. The watchdog flagged concerns about OneCoin in 2016, but months later the warning was removed from its website after pressure from the solicitors of Ruja Ignatova, the now-fugitive OneCoin founder.
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Sales of OneCoin in Britain rose after the warning was removed, according to victim support groups.
Last month, The Times revealed that the FCA had authorised a payments business in 2018 while its founder was subject to a money laundering investigation related to OneCoin.
The authority wants the government to include financial advertising in the upcoming Online Safety Bill to help to prevent scams by forcing social media sites and search engines to take more responsibility for scammers who use their platforms to advertise. The regulator’s concerns about crypto-based investments include price volatility, product complexity, high charges and fees and misleading marketing.
Since January last year, all British crypto asset firms must be registered with the FCA under regulations to tackle money laundering. Operating without a registration is a criminal offence. However, many investments advertising high returns based on crypto assets are not subject to any regulation beyond anti-money laundering requirements.
Tim Mangnall, 35, chief executive of Capital Block, which advises sports and entertainment bodies on crypto-related schemes, said: “The space does need full regulation and it needs it fast, otherwise the honest advisers, business and platforms will continue to be faced with some of the scepticism the market faces.”
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Mangnall said that “bad apples” were taking advantage of individual and corporate investors. “I’ve personally been investing in crypto for years and I still always take a step back and ask myself whether I fully know what I’m getting into, who are the team behind the project and what is their experience in the sector. It always comes back to due diligence.”
An FCA spokeswoman said: “It’s important that consumers check who they are really dealing with before making an investment decision. Check if they are authorised by the FCA and do your research to understand the risks that might be posed.”
