Surge in investment scams persists, FCA reports

Regulators in the U.K. are reporting an ongoing surge in investment scams, led by cryptoasset schemes, boiler rooms and recovery scams.

The Financial Conduct Authority (FCA) reported that the number of inquiries it received about suspected investment scams rose by about 30% in 2021 (from April to September), compared with the previous year.

Scam reports increased sharply since mid-2020, the regulator noted.

As a result, it opened over 300 investigations into unregistered crypto firms and currently has 50 cases in the works. Probes into possible criminal activity include boiler room operations linked to international organized crime, dubious online trading platforms promoted on social media, and other high-risk product promotions.

Overall, the regulator opened 945 cases involving suspected investment scams during the six-month period.

It also closed 844 cases, with 19% of these cases closed following regulatory action, 11% referred for further investigation (including referrals to regulatory and/or law enforcement), and the remaining 70% closed after a supervisory review.

“Consumers need to have confidence when making investment decisions, and the data we’ve published today show how prevalent scams can be,” said Sarah Pritchard, executive director of markets with the FCA, in a statement.

Additionally, the FCA said it rejected about 25% of the applications it received from firms seeking to enter the consumer investment market. This represents an increase from about 20% the previous year.

Several of the rejected applications involved people suspected of providing poor, unsuitable advice now seeking to set up new firms — a practice known as “phoenixing.”

Preventing firms from entering the industry at the registration stage addresses the risk of harm early on, the FCA said. “It also helps prevent problems further down the line which may require supervision or enforcement action,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.