FCA investigations into cryptocurrency businesses jumps 74% in 12 months

07 Oct 2019 | 11:39 am | 3 min. read

The number of live FCA investigations into cryptocurrency businesses has increased 74% to 87 (FCA, September 2019), up from just 50 in September 2018, says Pinsent Masons, the international law firm.

 
  • Cryptocurrencies continue to pose a high risk of fraud
  • FCA’s Final Guidance on Crypto-assets enabling regulator to more accurately pinpoint cases for investigation

Pinsent Masons says that the huge fortunes that have already been made by early investors in cryptocurrencies makes private clients more susceptible to the sales pitch of fraudsters in this area. It also easy for a fraudster to set up a cryptocurrency business and sell tokens as they require almost no physical assets.

The rise in investigations reflects how seriously the FCA is taking the risks associated with cryptocurrencies, with the FCA Chair recently describing how fraud in the sector remains a significant problem. The FCA estimates that individuals in the UK lost over £27m, that it knows of, to cryptocurrency and forex investment scams in 2018/19.

Pinsent Masons says following the publication of its Final Guidance on Crypto-assets in July 2019, the FCA is now clear on those businesses that fall within its remit and can therefore more accurately pinpoint cases for investigation.

US regulators are taking a similarly hard-line on cryptocurrencies. The SEC recently sued Canadian firm Kik Interactive for conducting an illegal $100m unregistered ICO and reached a settlement with Russian firm ICO Rating over a potential breach of anti-touting laws. The North American Securities Administrators Association in 2018 secured more than $1bn in restitution from enforcement actions into ICOs.

David Heffron, Partner, at Pinsent Masons says: “The rise in investigations reflects the FCA’s increasingly hand on and no-nonsense approach to enforcing the law in the cryptocurrency market.”

“For cryptocurrency businesses acting lawfully these statistics will be encouraging – they want bad actors pushed out. The FCA’s crackdown on businesses operating on its regulatory perimeter will instil a degree of confidence that products reaching consumers are less likely to be scams.”

Whilst it is increasing its investigations into potentially fraudulent crypto businesses the FCA is also increasing its cooperation with legitimate cryptocurrency businesses to assess whether their products require authorisation. For example, since the launch of the FCA’s Regulatory Sandbox, which is a programme that allows businesses to test their products in a controlled environment, 52 of the 135 (39%) of businesses accepted have been cryptocurrency and blockchain-related firms.

David Heffron adds: “The growth of the FCA’s sandbox scheme by cryptocurrency businesses is just one indication of the efforts being made by both businesses and the regulator to work together on these fast evolving products.”

“For those cryptocurrency businesses looking to launch any product, engagement with the FCA is now an absolute necessity. If any business is unsure as to whether they require authorisation, then they should speak to a professional.”

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David Heffron

David Heffron

Partner, Head of Finance and Projects

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