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FCA issues cryptocurrency and investment fraud warning

Posted on 08 February 2018 by Sam Ruback

FCA issues cryptocurrency and investment fraud warning

The Financial Conduct Authority ("FCA"), the UK's financial regulatory body, issued a warning this week about the threat from online investment fraud.

The FCA urged investors to be vigilant to fraudsters offering investments in binary options (those that allow customers to make bets on the expected price of a stock, commodity, currency or index), contracts for difference (CFDs) and cryptocurrencies such as bitcoin.

The FCA warned that investors are targeted by fraudsters via social media channels such as Facebook, Instagram and Twitter, rather than by telephone, and are being tempted to invest by promising high returns and linking the opportunities to luxury items such as cars and watches. Once an individual has invested, the prices are distorted on their website, people are tied in with extreme pay-back clauses and sometimes customer accounts are closed arbitrarily as the fraudsters steal the money.  

The FCA announced that binary options scams caused investors to lose nearly £90,000 a day last year. The rise in these scams has affected the profile of the likely victims, too. Historically, the over 55s have been most at risk to investment fraud, however the FCA's latest study has found that those aged under 25 were 13% more likely to trust an investment offer they received via social media compared with 2% for the over 55s.  Overall, around 20% of the respondents to the FCA's study said that online customer reviews and testimonies increased their trust in a company or opportunity.

The FCA has commenced a ScamSmart campaign that encourages individuals to check its dedicated website to assess whether a company is authorised or to gather advice about whether an opportunity is likely to be fraudulent.

Binary options investments became a regulated investment on 3 January 2018 and the FCA has already published a list of 94 firms it believes are offering binary options trading to UK consumers without authorisation.  (See here for more detail)

The FCA's key advice to consumers is:

  1. Reject unsolicited investment offers whether made online, on social media or over the phone;
  2. Check the FCA register before investing and to check the FCA warning list of firms to avoid; and
  3. Obtain impartial advice before investing.
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