Current trends in fraud: Crypto scams

The Financial Conduct Authority (FCA), in its annual business plan published today, sets out its areas of focus for the year ahead.  It is, as ever, essential reading for all those in the regulated sector. 

For the fourth year the FCA has published research on the changing relationship between consumers and cryptoassets. In spite of the pandemic, the strong upward trend in public engagement and media coverage has continued, with the FCA estimating 2.3 million adults now hold cryptoassets.

A Director at the National Crime Agency recently voiced concern about crypto assets being used to fund property purchases in the UK. The NCA’s Nigel Leary was quoted by The Times as saying: “Anything purchased with crypto assets I’d be slightly sceptical about. I’d like to see why they’re being done in that way and what the requirement is for that anonymity, and why it needed to be done in a crypto transaction.”

Despite the Covid-19 pandemic, 2020 was an incredible year for crypto assets.  Largely driven by the increased demand from institutional investors, Bitcoin shattered its previous price records. However, its pseudonymous nature and the ease with which it allows users to instantly send funds anywhere in the world makes crypto assets appealing to criminals.

Hot on the heels of its consultation on bringing cryptoasset inside the scope of the financial promotions regime at the tail end of last year, the FCA has launched a further consultation on the UK’s regulatory approach to cryptoassets and stablecoins. 

As of 10 January 2021, all cryptoasset firms are required to be registered with the Financial Conduct Authority (FCA) under the Money Laundering Regulations.

Research recently undertaken by the FCA has found that 5.35% of the UK population hold (or have previously held) cryptoassets where in 2019 this figure was 3%. For several years now the Government, the Bank of England and the FCA have been consulting on and considering how best to regulate this burgeoning market.

The year 2019 started with plenty of optimism regarding the growth of Security Token Offerings (STOs). Many articles at the start of the year suggested, like one on TokenMarket, that “it’s looking very likely that 2019 will be the year of the security token offering”.  In this blog we look back on some of the key moments of 2019 with regard to STOs and consider whether 2019 really was the dawning of a new era worthy of the revolutionary hype back at the start of the year. However, if you would first like to take a step back and digest a user-friendly introduction to the concept of security tokens, please listen to our podcast or read our earlier crypto assets blog.

In just ten years, cryptoassets have become a £100 billion industry. We now face the alarming prospect that millions of pounds can be hidden behind a few lines of computer code without ever touching a bank account. If your soon-to-be ex-partner has made a fortune with Bitcoin, how do you get a share?

The tenth anniversary of the first ever BitCoin transaction will fall in April 2020.  Not many people are using cryptoassets for everyday transactions, such as a takeaway pizza order and as such Satoshi Nakamoto’s vision of a stateless peer to peer electronic currency is yet to be realised, but in the last few years cryptoassets have certainly entered the public consciousness, even if that does mostly relate to the huge spike in the value of BitCoin in December 2017.

Security tokens are a digital representation of ownership rights in real world assets (such as property or shares) and have captured the curiosity of entrepreneurs, startups and investors. This blog summarises the potential benefits and pitfalls of security tokens and is part of our wider crypto assets blog.

The Singapore International Commercial Court (SICC) case of B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03 considers how the law relating to mistake could apply to contracts formed on an automated basis by computers using algorithmic software.

Whether you are in the market for short-term profit or making long-term investments, adequate planning is certainly a worthwhile (and small) investment of your time and money. If you’ve been savyy enough to successfully invest in crypto-assets, make sure you are smart enough to ensure your loved ones can benefit, should the worst happen.

“Cryptoassets have attracted significant and growing attention from consumers, markets, governments and regulators globally”, stated the FCA earlier this year in launching its consultation on its Guidance on Cryptoassests.  Jill Lorimer has previously commented on the Cryptoassests guidance.

The aim of the Guidance is to “provide regulatory clarity for market participants carrying on activities in this space” and it appears to do just that.

The recent confirmation by the UK Financial Conduct Authority (FCA) that it is investigating 18 firms involved in the sale of crypto assets, such as Bitcoin, indicates a ramping up of regulatory focus on the controversial sector.

The Treasury Committee’s inquiry into economic crime is one of the most wide-ranging of the committee’s current workstreams, and its conclusions are keenly awaited.

As well as assessing the effectiveness of the anti-money laundering regime in the UK, MPs have been examining the impact of economic crime on consumers.

Earlier this month, the Lord Chancellor David Gauke confirmed that a new 18 courtroom legal centre is to be built on the site of Fleetbank House in London which will focus on issues such as economic crime (including fraud) and cyber crime.  Due to be established in 2025, this “state-of-the-art court” is to give the message to the world that Britain “stands ready to deal with the changing nature of 21st century crime”.

On 11 June, the UK Financial Conduct Authority (FCA) issued a “Dear CEO” letter on how banks should deal with the financial crime risks associated with “cryptoassets”. The FCA defines cryptoassets as publicly available mediums of exchange that feature a distributed ledger and decentralised system for exchanging value, such as Bitcoin and Ether. These assets are more commonly known as cryptocurrencies.

Regulators around the world are calling for cryptocurrencies to be brought within the remit of financial regulation. To date, the focus has largely been on Bitcoin, which was the predominant cryptocurrency traded on some of the largest dark web markets. However, in light of the call for better oversight, the value of Bitcoin plummeted and evidence suggests that users are moving towards alternatives that afford greater anonymity.

The Treasury has indicated that it is planning on regulating bitcoin, in an attempt to bring some order to the Wild West that is cryptocurrencies. What would regulation of Bitcoin achieve?