The UK’s financial watchdog has warned of the rise of fraudulent online trading platforms after the reported number of cryptocurrency and foreign exchange scams more than tripled in the last financial year to more than 1,800.
The FCA has been probing the potential harm done to consumers using cryptoassets such as bitcoin, a digital currency that surged in popularity in 2017 but has since shed more than 60 per cent of its value.
The watchdog said the number of crypto and forex fraud claims had jumped from 530 to 1,834 in the 2018/19 financial year to early April, according to data provided by Action Fraud, the national fraud reporting service. The vast majority — 81 per cent — of the claims related to cryptocurrency scams.
While the number of reports soared, average individual losses dropped from £59,600 to £14,600. Overall, total losses fell from about £38m to £27m.
Pauline Smith, Action Fraud director, said: “These figures are startling and provide a stark warning that people need to be wary of fake investments on online trading platforms. It’s vital that people carry out the necessary checks to ensure that an investment they’re considering is legitimate.”
The FCA said fraudsters were increasingly using social media to promote their “get rich quick” schemes, often using fake celebrity endorsements and images of expensive cars and watches. Victims are then directed to professional-looking websites, where they are persuaded to make their first investment.
Investors will typically be led to believe that their first investment has made a profit. The fraudster will then contact the victim to suggest they invest more money or introduce friends and family with the false promise of greater profits. However, eventually the returns stop, the customer account is closed and the scammer disappears without further contact.
Mark Steward, the FCA’s executive director of enforcement and market oversight, warned investors to be suspicious of adverts promising high returns from online trading platforms. “Scammers can be very convincing so always do your own research into any firm you are considering investing with, to make sure that they are the real deal,” he said.
The FCA, along with the Treasury, has been attempting to crack down on harmful elements of the market in cryptocurrencies as part of a government-led Cryptoasset Taskforce.
The watchdog is considering a ban on high-risk derivative products linked to cryptoassets, which are often highly leveraged and can result in heavy losses to investors. The Treasury is also set to consult on whether the FCA’s remit should be broadened in order to put it in charge of a greater part of the crypto industry.
Sarah Coles, personal finance analyst at investment service Hargreaves Lansdown, said “Crypto scams are flooding the internet. If a company approaches you out of the blue, through social media or on the phone, it pays to start with scepticism — even if a trusted face seems to be fronting it.”