The Financial Conduct Authority (FCA), a regulatory entity based in the UK, has significantly increased its number of probes concerning cryptocurrency-related businesses. Data from the international law firm Pinsent Masons shows that, as of September this year, the number of live investigations by the regulator has surged from 74% last year to 87%.
While a number of investors have already capitalized on the early rise of the disruptive sector, the law firm warns that the ‘get rich’ appeal might attract scammers who will target newcomers. The UK-based regulatory entity has made similar remarks and claims that fraud is a major problem in the cryptocurrency sector.
According to data from the past year, the FCA states that UK citizens have lost £27 million in both crypto and forex scams. As such, individuals who are willing to invest in the disruptive sector should take caution before taking any major decisions.
Aside from targeting potentially fraud-worthy businesses, the agency has also taken steps to parent with established and legitimate crypto-oriented firms to find out if their products need to be authorized.
In that regard, the FCA has previously warned Facebook, when the social giant announced that it is releasing Libra, a global cross-border cryptocurrency, that the digital asset will go through intense regulatory scrutiny.
As for the current scrutiny that less-known crypto firms are dealing with, David Heffron (partner at Pinsent Masons) stated that the increasing number of investigations mirrors the FCA’s determined stance to carry out a ‘hands-on and no-nonsense approach’ when it comes to enforcing regulation in the crypto market.
Removing fraudulent companies will bring confidence
Commenting on the benefits that complying crypto firms might receive from the recent focus on fraudulent companies, Heffron stated that ‘the statistics are encouraging.’
Regarding institutional and consumer-level trust, Heffron said that the recent crackdown by the FCA will result in a new degree of confidence that will ensure that cryptocurrency products are less likely to be scams.
However, the FCA might have been too harsh on the sector when the agency proposed a ban in July on financial instruments linked to cryptocurrencies like Bitcoin.
Nevertheless, the agency backed their potential decision stating that derivatives and other financial instruments such as exchange-traded notes (ETN) could bring huge financial losses to investors if they are linked with crypto assets.
The reason behind this is the ‘extreme volatility’ commonly found in most cryptocurrencies, which would present an ‘ill-suited’ product to small investors.
The SEC is set to penalize uncompliant businesses
Despite the ambivalence in Europe’s stance on the regulation of cryptocurrencies, the U.S. Securities and Exchange Commission recently began to target unregistered crypto firms, issuing significant penalties to businesses that do not comply with the sector’s currently established laws.
While the crypto community enthusiastically named 2018 the year of regulation, it seems that clear regulatory frameworks are still not established and that the cryptocurrency market will not become rid of any scams soon.