Cryptocurrency (crypto) is a form of currency that exists digitally or virtually and uses cryptography (instead of the ordinary banking system) to secure transactions. Ether and Bitcoin are two of the most popularly known cryptocurrencies, but there are also other cryptocurrencies on the market. Instead of physical money being carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries in an online database describing specific transactions.
Why Crypto
People are attracted to this currency because of the ease of transferring it via the internet without using banks. The other attraction is that cryptocurrencies – particularly bitcoin – have produced very lucrative returns. Even news of the recent collapse and filing for bankruptcy of the crypto exchange FTX does not appear to have affected bitcoin trading. Crypto News reports that “Despite the ongoing uncertainty in the cryptocurrency market, Bitcoin is mostly unchanged”. Although the Guardian counters this with the warning concerning FTX depositors:
“While depositors in a cryptocurrency exchange may feel similar to bank account holders, they have far less legal protection. In the case of a collapsed exchange such as FTX, they are simply unsecured creditors, and legally stand to be some of the last creditors to recover funds, far behind bank loans and slightly ahead of equity owners.”
Safety, Security and Fraud issues
Whilst the attraction to and transactions using crypto are increasing, so too is the concern over the security and safety of crypto transactions in recent years. With the increasing growth in these transactions there has also been significant growth in cryptocurrency-related fraud, this is because cryptocurrency is a complicated idea and much of the industry sits in a regulatory grey area. Crypto scams occur outside the system of regulated financial institutions and legal protection that safeguards consumers. And tracing the international networks of criminals behind this fraud presents huge challenges for law enforcement and other investigators.
In the UK, Rich Drury, ombudsman manager at the Financial Ombudsman Service, which handles complaints against financial companies said:
“Inevitably, due to the nature of cryptocurrency — that it’s irreversible, anonymous and global — it’s obviously attractive to fraudsters”.
However, the UK Financial Conduct Authority (FCA) has advised of recent regulation for Crypto asset registration:
“In January 2020, new regulatory powers were introduced to allow us to supervise how crypto asset businesses manage the risk of money laundering and counter-terrorist financing. Now, UK crypto asset businesses must comply with the Money Laundering Regulations (MLRs) and register with us.
If a firm you are dealing with didn’t submit an application by 15 December 2020, it won’t be eligible for the Temporary Registration Regime. It should have returned any crypto assets to you and stopped trading by 10 January 2021.”
The Police have also warned about the rise in fraud in relation to transactions involving cryptocurrency.
Action Fraud, a service run by the City of London Police working alongside the National Fraud Intelligence Bureau (NFIB), is the UK’s national reporting centre for fraud and cyber-crime and has advised that:
“Most firms advertising and selling investments in crypto assets are not authorised by the Financial Conduct Authority (FCA). This means that if you invest in certain crypto assets, you will not have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.”
Furthermore: “Criminals advertise schemes promising, in some cases, high returns through cryptocurrency investing or mining. Frequently advertised on social media, criminals try to lure you in with adverts offering easy money quickly in order to obtain your money or personal information.
One common tactic used to defraud victims is the use of celebrity endorsements. Criminals will present professional and credible looking online adverts, send emails and create websites to advertise fake investment opportunities, including cryptocurrency. Often, fake testimonials are accompanied with a picture of a well-known figure to help the investment seem legitimate. Between April 2020 and March 2021, Action Fraud received 558 investment fraud reports which made reference to a bogus celebrity endorsement – with over three quarters (79 per cent) of reports mentioning cryptocurrency as the commodity they invested in.”
The firms operating the scams are usually based outside the UK but will claim to have a UK presence, often a prestigious City of London address.
How Page Group can help
It is crucial to know who you are dealing with. A simple background check on the company advertising lucrative crypto rewards could save potential financial loss. Page Group is well-placed to undertake these checks both in the UK and in other jurisdictions and can flag up irregularities, giving the investor more information to make an informed choice.
Remember the old adage if it sounds too good to be true, it probably is…
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