Ongoing rise in cryptocurrency scams increases calls for regulation

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Research from a financial claims management company has revealed that cryptocurrency scams are on the rise.

Work by Refundee shows that of the 1,742 scams reported to the Shoreditch-based company, cryptocurrency fraud has accounted for 31 per cent of reports.

This is followed by investment scams at 19 per cent, purchase scams (18 per cent), work/job task scams (14 per cent), and romance scams weighing in with seven per cent.

Cryptocurrency scams are often based around fake opportunities with promises of huge returns. They use a variety of tactics to convince victims to send them money, including with social media marketing, fake websites and phishing emails. 

Stuart McFadden, co-founder of FCA-regulated Refundee said media attention and complexity around cryptocurrency investments makes it a natural target for scammers.

“The scams follow a very familiar pattern but, unfortunately, we see banks systemically failing to train their staff to spot the signs of these scams, prevent them and educate their customers.”

Charlotte Tregunna, Of Counsel at London law firm Peters & Peters said it was inevitable that scams would become prevalent in the crypto ecosystem, given their prevalence in traditional finance.

“You have to hand it to crypto scammers – they are, at least, imaginative. The types of scams that are luring would-be, and even those who consider themselves sophisticated, investors are inventive and extensive, demonstrating scammers’ ability to adapt to new crypto products and environments with ease,” she said.

“Those types of scams are ascribed equally imaginative names by the industry: pig butchering; pump-and-dump; trash-and-cash. What will be the name of the scam that investors need to look out for next?

“Their scale and impact has been exacerbated by the speed at which the crypto market has grown; the lack of comprehensive and joined up regulatory framework both domestically and internationally (still in its infancy in most jurisdictions); and the inherent difficulties in pursuing scammers who are often not situated in the same country as their victims.”

Charlotte added that law enforcement bodies often do not have sufficient resources to pursue fraud perpetrated through traditional means, particularly when the sums involved are not high per investor, despite amounting collectively to a huge gain for the scammer.

“Add in the complexities and cost of tracing the fraudsters and their ill-gotten gains via multiple jurisdictions, wallets, tumblers, bridges, etc. and the likelihood of an investor seeing the perpetrator brought to justice, or their money again, is slight,” she explained.

“Of course, a partial answer to the solution is increased regulation. HM Treasury’s consultation on the future financial services regulatory regime for cryptoassets is open for evidence until April 30. However, questions remain as to whether the regime proposed (effectively extending the existing TradFi regulatory regime to crypto activities) is fit for purpose in the crypto context; whether there is the legislative flexibility in place to support the proposals and future innovation; and whether the FCA will ever be properly equipped to deal with this fast paced and ever evolving industry.

“In the interim, crypto scams will continue unabated and given scammer ingenuity, will likely continue to top the list for a number of years until regulators and law enforcement get their act together. Investors, however sophisticated, therefore need to educate themselves before investing. Do your research. Notice red flags. If it sounds too good to be true, it probably is.”

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