Safeguarding Against Scams
Crypto or digital assets are a relatively new technology, these innovations bring many societal benefits such as greater access to financial services, reduced fees, and faster, more secure and transparent transactions. However, as with any new financial product that falls on the edge of the regulatory scope, consumers can be vulnerable to opportunistic scam artists.
Many of the historic methods used to commit financial fraud and crime are now being used in the crypto space. Here we provide guidance on how to avoid these approaches, share links to advice from the UK’s regulators and law enforcement agencies, and provide some key facts and resources to help better inform retail and institutional industry participants.
What To Look Out For
There are many ways in which scammers can attempt to trick you into parting with your digital money. Take Five is a national campaign that offers straight-forward and impartial advice to help everyone protect themselves from preventable financial fraud. This includes email deception and phone-based scams as well as online fraud – particularly where criminals impersonate trusted organisations.
Led by UK Finance, the campaign is delivered with and through a range of partners in the UK payments industry, financial services firms, law enforcement agencies, telecommunication providers, commercial, public and third sector organisations.
Below you will find questions and red flags specific to crypto. If you are unable to obtain clear and concise answers to your inquiries, or observe one or more of these risk indicators, then please be cautious with your funds.
Red flags
- An aggressive, opaque and/or unrealistic marketing approach:
- A heavy focus on marketing – repeated attempts to contact you across various channels (social, phone, email, targeted advertising)
- Incentives to buy before a specific deadline
- Selling products as bundles
- A minimum order level – most reputable exchanges allow for as little as £1 purchase of crypto
- Multi level marketing practices, where you are financially incentivised to recruit more people to purchase and/or sell products or services
- Promises of extremely positive future outcomes, especially around financial success and wealth attribution.
- Unclear company information on the website:
- Can you clearly identify the team (founders, legal, technology) behind the product or service?
- Transparency around who is involved is very important.
- Can you check their backgrounds on LinkedIn to validate whether they have experience working for credible businesses in the sector?
- Has the company received backing from credible venture capital or strategic advisors?
- Is the company registration number clearly stated so you can conduct your own due diligence (on Companies House for those registered in the UK)?
- Is a legitimate office address provided?
- Can you clearly identify the team (founders, legal, technology) behind the product or service?
- Lack of product or service clarity:
- Can you easily remove your crypto assets from the platform?
- Is it clearly explained how the company secures and safeguards (custody) clients’ funds?
- Are clear descriptions of storing any type of asset quantifiable in the public domain?
- What does the crypto asset actually do? There are thousands and it is often hard to understand the value that the token confers to the holder.
- Ways in which disreputable companies may try to offer false assurance:
- Being a member of a trade body – all credible trade bodies do due diligence on their members, however this does not mean there is no risk
- Currently applying for, or even having received, a regulatory licence of any sort, does not remove risk and you should conduct your own due diligence before investing
- Listing a token on an exchange is no guarantee of the legitimacy or of potential price increases:
- Many exchanges use a “pay to play” model, the token issuer buys the right to be listed and the exchange receives fees for that listing
- Do your research on the exchange’s listing methodology
- This should be fair, transparent with 3rd party involvement
- Who are the service providers? Can corroboration be sought?
- Is the model a ponzi scheme? What are the sources of revenue? Is the only identifiable source of revenue new investment? Using new investment to pay returns on bonuses offered to introducers is often an indicator of a ponzi scheme.
Key Facts
Volatility – A Double Edged Sword
Any crypto asset is highly price volatile, meaning whilst there is potential for gain there is also a high risk of total loss. Therefore, when investing be prepared to lose 100% of the investment. If you can’t afford to lose the amount of money you are considering investing, then think twice before parting with your funds.
Not Fiat
Crypto assets are not anything like money. Please do research before considering buying any. We suggest at the bare minimum Google the basics, the place you are buying it from etc.
If It Sounds Too Good To Be True …
Be careful of direct marketing promotions promising high returns. If you received an email, text or direct message on any of your social platforms, a good strategy is to assume that the email is malicious and therefore ignore it. This is akin to how banks advise against responding to emails from them. The acquisition should be driven by you and not an email sent to you.
Don’t Attract Adverse Attention
Finally, do not advertise the fact that you hold crypto or you bought it for the first time on social media. Social engineering is a common practice for scammers and we regularly hear stories where high returns are promised if crypto is sent to an address. In almost every case those funds are simply never returned to the owner.
Consider The Source
Be mindful of where you are buying crypto from. As adoption increases so does the number of market participants allowing you to buy crypto. Many global brands allow their clients to purchase crypto. Here at CryptoUK we are independent and do not promote any of our members. However, as per our Code of Conduct we undertake due diligence on all our members.
Limited Recourse
If you send your crypto to a scammer you cannot call your provider to recall your transaction as you would if you were using a credit card.
Crypto Is Regulated
Certain requirements and activities are slowly falling into the regulatory perimeter such as anti-money laundering, financial promotions and stable coins/tokens.
“The Crypto Space is Full of Criminals
This is not true. The risks of fraud, money laundering and terrorist financing are not disproportionate to more traditional financial services products. Bitcoin for example is not proportionally a greater risk than any other asset – learn more here.
Resources
FCA – Cryptoassets investment scams guidance
HM Government & UK Finance – Take 5 to stop fraud
Action Fraud – National fraud & cyber crime reporting centre
Fraudulent CryptoUK Members
As the UK’s digital asset trade association we occasionally find companies falsely claiming membership of our community. Please note the following companies are not CryptoUK members:
PHPtrader
FINANCEXPRO
