British Crypto Investigations Skyrocket 74%


British Crypto Investigations into cryptocurrency firms by the UK Financial Conduct Authority (FCA) have surged by three-quarters this year, as the agency tightens the rein on the crypto sector.

Scrutiny On the Rise British Crypto Investigations

According to research from Pinsent Masons, an international legal firm, active investigations into cryptocurrency firms have surged to a whooping 87 companies in 2019 from just 50 a year prior.

Speaking on the rampant increase in scrutiny, David Heffon, a partner at Pinsent Masons, remarked how the spike came after renewed cryptocurrency guidelines were published back in July.

“The rise in British Crypto Investigations reflects the FCA’s increasingly hands-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 instill a degree of confidence that products reaching consumers are less likely to be scams.”

Indeed the vast majority of cryptocurrency firms have nothing to worry about and are perhaps be grateful for the higher standard to which the industry is held.

Still, crypto scams are incredibly prevalent, often ramping up within bull cycles as more eyes get drawn to the sector. It’s become such an issue on Twitter that the platform recently instilled a new policy to help shut down what they term, “money flipping schemes.” This particular scam urges unsuspecting investors to send a relatively small amount of crypto in return for a much larger reward; with scammers often using a fake celebrity account as bait.

Elon Musk used as bait in a popular crypto scam
Elon Musk used as bait in a popular crypto scam

Incredibly, an estimate from the city of London police suggests that investors lose around £74,000 ($91,034) per day due to various cryptocurrency rackets.

FCA Mulls Crypto Derivative Ban

Unfortunately, this increased scrutiny may not be enough to quell the wrath of the FCA. The watchdog is also considering a ban on cryptocurrency derivatives within the UK. The proposed embargo, aimed at retail investors, would affect products, including futures and options trading, as well as exchange-traded notes (ETNs).

This crackdown comes as bitcoin continues its southerly trajectory, falling around 40% since its 2019 high back in June. For the FCA, this volatility excludes cryptos from being legally recognized as currencies. Therefore, according to the regulator, providers of crypto derivatives cannot justify their use as hedging instruments. Further ramming their point home, the FCA estimates that a ban could reduce investor losses by $234 million a year.

Of course, the watchdog has faced industry backlash, with experts claiming that crypto derivatives are just as risky as traditional products.

In response to the FCA’s proposal, Coinshares – a UK cryptocurrency exchange – wrote an open letter to the FCA, implying that they hadn’t done their research.

“We believe that the FCA has not provided sufficient evidence to justify the proposed ban. Through its consultation, the regulator makes little attempt to genuinely evidence its claims and instead ‘cherry picks’ datasets in order to illustrate its perception of crypto assets, ETNs and the perceived harm the FCA believes these products cause.”

It’s a delicate balance to strike, on one hand, the regulator has a clear mandate to protect investor interests; on the other, the imposition of a ban runs the risk of stifling innovation, and driving companies to set up shop in other jurisdictions, which could see the UK fall behind in the fintech sector.

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