The Financial Conduct Authority (FCA) is taking action to prevent scams in the consumer investment sector after it stopped one in four firms from entering the market.
The regulatory body received 16,400 enquires about possible scams, up nearly a third from the same period in 2020 between April and September last year.
The top types of scams reported included cryptoasset, boiler room and recovery room swindles.
The latest data shows a quarter of applications from firms wanting to join the consumer investment market are being stopped by the FCA – up from one in five in the last financial year.
Nine of the firms prevented from gaining authorisation were because the individuals involved were responsible for giving unsuitable advice before trying to avoid the consequences of their actions by moving to or setting up new firms.
Other individuals set up and sought authorisation for a new firm before their existing firm started to receive complaints about poor past advice.
Now the FCA has released data on the most common scams – and what it is doing to protect consumers.
Sarah Pritchard, Executive Director of Markets at the FCA said: “Consumers need to have confidence when making investment decisions and the data we’ve published today shows how prevalent scams can be.
“Before investing, check you know who you are really dealing with, check if they are authorised by the FCA and do your research to understand the risks that might be posed.”
How do the common scams work?
Cryptoasset scams, which involve cryptocurrencies like Bitcoin, often take place on social media with fraudsters advertising on platforms, such as Instagram, to lure victims in.
They will regularly use images of celebrities or well-known individuals to promote cryptocurrency investments with the ads linking to professional-looking websites.
Consumers are then persuaded to invest with the fraudsters firm using cryptocurrencies or traditional currencies. After, victims will find they cannot get their money back.
The FCA revealed that over six months, it opened over 300 cases relating to possible cryptoasset businesses not registered with the FCA, many of which may be scams, and that it has 50 live investigations, including criminal probes, into unauthorised businesses.
Meanwhile, boiler room scams are also known as share and bond scams where fraudsters cold-call investors offering them worthless, overpriced or even non-existent shares or bonds.
Recovery room scams usually follow on from boiler room scams with fraudsters approaching investors who have been scammed or had failed investments, offering to help them get their money back for an upfront fee.
What is the FCA doing to combat this?
To combat the rise in this type of fraud, the FCA is urging consumers to be aware of its InvestSmart and ScamSmart schemes, following an increase in the number of scams being reported to it.
The FCA’s ScamSmart campaign encourages those considering investing to check its dedicated website which features an online tool, and the Warning List, which allows users to find out more about the risks associated with an investment and view a list of firms the FCA knows are operating without its authorisation.
Some 19 per cent of ScamSmart users reported hearing about potential scams through social media adverts, and 4 per cent were actually directly approached on social media.
Meanwhile, the InvestSmart campaign, launched in October 2021, targets consumers who are new to investing, and aims to provide them with information to make better-informed investment decisions.
The FCA said it is drawing on all the tools at its disposal, including more assertive supervision and enforcement action, and is being tougher with firms who want to operate in the sector.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Last year was boom time for cryptocurrencies, and for suspicious crypto marketing campaigns as well.
“There was a big spike in consumers checking the FCA’s Warning Tool after being approach with a cryptocurrency investment opportunity which no doubt sounded too good to be true.
“Scam activity is not new, but it does appear to be increasing in scale, and embracing new forms of digital communication.
“Investors in today’s world do need to be watchful, and not let down their guard because they think they’re too smart to be conned. Scammers are adept at targeting consumers with appealing messages at a time when their defences might be lowered.”