UK’s FCA is stepping up investigations of cryptocurency companies


In many respects, the world of cryptocurrencies is very reminiscent of the evolution of retail forex trading in the nineties. At that time, every aspect of trading in this new genre was an innovative adaptation of existing technologies, but with an entirely different look and feel. Regulatory agencies around the globe were unprepared for what was soon called the “Wild, West West”. Fraud was rampant across the complete spectrum of activities. Regulators had to take the bull by its horns to protect consumers.

Fast forward to today, and regulators face a similar challenge with cryptocurrencies. Fraud is pervasive. Gone are the days when a new technology can percolate for a decade before regulators have to bring discipline and order to the game. Organized crime has learned to move swiftly with modern technology at its side. In the nineties, illegitimate forex brokers were the primary problem area, although shady salesmen plied their scams at every turn. In today’s crypto world, exchange compromises and scam Initial Coin Offerings (ICOs) are the tools of the trade for modern cyber-criminals.

Regulators, however, are on the attack. Per one report:

The FCA had started probes into 67 firms but inquiries into 49 of them have now been closed. Of these 49, 10 saw the investigations into them ended because either the FCA failed to get enough evidence necessary to advance the case or because the firm had received a warning informing it that it needed authorisation in order to continue operations. The six months from May to November last year saw the number of FCA cryptocurrency investigations double.

Syedur Rahman, of business crime solicitors Rahman Ravelli, sees broader issues at play in the FCA’s aggressive tactics to date. He claims there is a right way and a wrong way to go about issuing alerts and warnings, suggesting that the wrong approach with a “bad actor” could help the bad guys “cover their tracks and thwart any possible investigation.”

He is more concerned that the agency may not have the proper resources to arrest today’s modern thief:

Gaining evidence for a cryptocurrency prosecution is going to be a recurring problem. And it is likely to become increasingly difficult. Blockchain, the technology behind cryptocurrency, is a sophisticated tool. This means that those working in the cybercrime department of any enforcement agency will not only have to understand it, they will have to familiarise themselves with all aspects of it – and have the resources to obtain the new technology that is likely to be necessary to secure evidence for a prosecution.

Unlike the early days of retail forex trading, crypto related losses have been astronomical. In 2018 alone, crypto exchanges have been hacked to the tune of more than $1 billion. ICOs in the past two years have raised over $10 billion in development funding, but studies have concluded that 78% of these fundraising efforts were outright scams or based on thin business plans developed by incompetent management teams.

Christopher Woolard FCA

Christopher Woolard, FCA

Investors have definitely earned the right to complain to local authorities, whatever the truth might be, and regulatory crackdowns can only be regarded as a rational and expected consequence. The director of strategy and competition at the FCA, Christopher Woolard, has publicly stated that products in the crypto space have “market integrity issues”, but this overly polite way of characterizing investor losses may need to become more combative, if lawlessness within the crypto ecosphere is to be eradicated.

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