Latest FCA figures show a rise in the number of scams over the past year, including a ‘sharp rise’ in those around cryptocurrency, posing a significant risk to investors.
In its consumer investments data review, the watchdog said enquiries about possible scams started to increase sharply from mid-2020 onwards and remained consistently high between 1 April and 30 September 2021.
The FCA received over 16,400 enquiries about possible scams during the six month period and witnessed a sharp rise in the number of cryptocurrency scams. The FCA’s Supervision Hub reported a 14% increase on the previous six months, while reports to the ScamSmart website jumped by 49%.
In addition, the FCA said it had opened over 300 cases relating to potential unregistered cryptoasset businesses during this period, many of which are likely to be involved in scams.
However, it recognised that its powers were limited in dealing with many issuers of high-risk investments where they are not carrying out a regulated activity and noted that it was unable to impose its requirements if issuers were unauthorised and not subject to its rules.
Matt Burton, chief risk officer at Quilter, said the data from the FCA “shows clearly that while considerable progress has been made in tackling the scourge of financial scams in the UK, they still represent an all too real threat to savers and investors.
“It’s not at all surprising that cryptocurrencies make up the lion’s share of FCA enquiries, with almost three times more cryptocurrency scams reported to Scamsmart than the second most reported product. The FCA’s supervision team did open over 300 cases related to unregistered cryptoasset businesses over the period but beyond that the FCA has relatively limited powers. This should change however, with the application of financial promotion rules to cryptoassets which is expected soon.”
Laith Khalaf, head of investment analysis at AJ Bell, said: “Last year was boom time for cryptocurrencies and for suspicious crypto marketing campaigns as well. Scam activity is not new but it does appear to be increasing in scale and embracing new forms of digital communication.
“Investors in today’s world do need to be watchful and not let down their guard because they think they’re too smart to be conned. Scammers are adept at targeting consumers with appealing messages at a time when their defences might be lowered. As ever, it makes sense to invest with robust, trusted businesses who are registered with the FCA.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that while the FCA is getting tougher on cracking down on financial scams, a lack of education among investors also poses a risk.
Streeter said: “Instead of just flashing the warning lights about the number of consumers being lured into risky crypto investments and scams, the financial watchdog is now getting a lot tougher on stopping suspect firms from entering the market.
“By showing it’s increasingly on the prowl for scammers and fraudsters, the regulator is clearly hoping to deter more rogue actors from trying to entice vulnerable people into get rich quick schemes. Given the volatile rise of coins and tokens over the pandemic, it seems many more fraudulent operations have been launched, to take advantage of consumers’ fear of missing out on the crypto rollercoaster.”
However, Streeter added that there continues to be a “woeful lack of knowledge” about the tactics used by fraudsters as well as a lack of understanding about potential losses.
Streeter said: “Consumers aren’t just at risk of being targeted by criminals. The FCA is also concerned about the increasing number of adults who are increasing their holdings in high risk products without being aware that losing some money was potentially a hazard. It’s estimated that a million UK adults, 6% of all UK investors, increased their holdings in high-risk products or bought new high risk assets during just the first seven months of the pandemic.
“Now, with the cost of living squeeze intensifying, the focus should instead be on ensuring consumers have a resilient pile of savings and lower risk investments to fall back on. [The FCA] is trying to highlight the pitfalls in its InvestSmart campaign and particularly targeting consumers who are new to investing.
“It’s clear that education needs to be sharpened up pretty pronto – with so many vulnerable consumers being lured in, and it’s very welcome that crypto assets will soon fall under the FCA’s watch as part of new legislation.”
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