In its Fraud Strategy 2026 to 2029, the UK government emphasised the 'growing risk' posed by cryptocurrency, particularly highlighting its role in investment fraud. Although there are a number of criminal offences which apply to the perpetrators of such fraud, the regulatory framework is still developing.
An 'investment scam' is a fraudulent scheme designed to steal the victim's money, often presented with little or no risk and very high returns. Common scams involve impersonating financial professionals to make the offer seem credible and convincing the victim to 'seize the opportunity' and invest quickly in order to make gains.
According to the Financial Conduct Authority (FCA), reports of crypto investment frauds have more than doubled since 2020, with fraudsters seeking to exploit the often complex and largely unregulated nature of cryptocurrencies.
Crypto investment fraud is driven by cryptocurrency markets' characteristic and unique periods of extraordinary, highly publicised 'booms'. The so-called 'bull runs' of 2017 and 2020-2021, during which Bitcoin's price rose to nearly $69,000 and the media buzz around crypto wealth heightened, created an atmosphere of intense financial anxiety, fuelling a 'fear of missing out' which fraudsters were quick to capitalise on.
The regulatory response to the rise of crypto
The regulatory response to the 'crypto boom' has been incremental, partly due to a desire on the part of successive UK governments to position the UK as a global hub for crypto innovation and partly due to the difficulties involved in applying existing frameworks to an entirely novel type of asset.
For the majority of the past decade, cryptoassets such as Bitcoin and Ether did not come within the definition of 'specified investments' under the Financial Services and Markets Act 2000 (FSMA). Therefore, in most cases, promoting or selling a cryptocurrency did not constitute a regulated activity, meaning fraudsters could operate with relative impunity.
In 2017, the government introduced a cryptoasset registration regime under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, requiring firms hosting crypto exchanges or providing wallet services to register with the FCA for anti-money laundering purposes. Whilst the FCA has sought to apply strict requirements for registration, this did not mean those firms were subject to the same controls as full FCA authorisation, and there remained a significant gap between traditional financial instruments (such as bonds and shares) and cryptoassets.
In 2023, the Financial Promotions Regime was extended to cryptoassets, meaning promotions made to UK consumers became subject to the same rules which govern the promotion of other regulated financial products under Section 21 of FSMA.
Nevertheless, there remain legal and practical difficulties in the FCA policing activities which are often carried out by entities based overseas, often in poorly regulated jurisdictions.
How will cryptocurrencies be regulated in the future?
The position substantially changed with the introduction of the Financial Services and Markets Act 2023, which will bring certain 'qualifying crypto assets' within the regulatory perimeter of FSMA. This was followed in December 2025 by the publication of the FCA's proposals for UK cryptoasset rules. Although not yet fully implemented, activities relating to the issuance, trading and promotion of these 'qualifying crypto assets' will be subject to the FCA's oversight and require authorisation in the same way as more conventional financial instruments.
It is hoped that this extension of the regulatory perimeter will help in the prevention of investment fraud, moreover, the Act's provisions on market abuse will provide more tools to address the 'pump and dump' schemes and wash trading that have been so endemic in the dark corners of the crypto market.
However, the global nature of the crypto world means the regulatory landscape is often described as 'patchwork'. It is not unusual for victims of crypto investment fraud to discover that the platform through which they were defrauded is entirely unregulated, thereby significantly limiting the recourse available to them. For the time being, the financial promotions regime, the AML registration requirement, and the general criminal law continue to constitute the primary defence against crypto investment fraud, provided that UK consumers ensure that they only deal with registered exchanges.