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Cryptocurrency fraud reports more than double in 2021

Cryptocurrency fraud reports more than double in 2021 | Insurance Business UK

Cryptocurrency fraud reports more than double in 2021

Reports of cryptocurrency fraud surged 116% in the 12 months ending on June 30, marking the fourth consecutive year increases have breached 100%, a recent study revealed.

Cases reported to Action Fraud, the UK’s national reporting centre for fraud and cybercrime, rose to 8,614 from 3,983 the year prior, according to data gathered by London-headquartered law firm Pinsent Masons.

The firm said that with cryptocurrencies rising in popularity among retail investors, more fraudsters were keen on taking advantage of those who are inexperienced in the area, especially through “get-rich-quick” schemes.

Pinsent Masons also expressed concern about the “disproportionately large” percentage of vulnerable investors becoming victims of cryptocurrency fraud.

Read more: How insurance can grow in cryptocurrency market

“This rising tide of cryptocurrency fraud shows no sign of peaking,” said Hinesh Shah, senior associate forensic accountant and financial crime investigator at Pinsent Masons, in a statement obtained by the Financial Times. “The police are now swamped with reports and cannot place adequate resources on these investigations.”

Shah added that UK civil courts could help track down fraudsters and reclaim stolen funds.

“There is a misconception that cryptocurrencies cannot be traced but the point of blockchain technology is transparency: transactions on the blockchain are traceable,” he said. “Legitimate crypto institutions that want to stay on the right side of regulators and enforcement agencies will cooperate with a UK court order and freeze the stolen assets.”

However, for those who lost small amounts, pursuing class actions together, either against the fraudsters or the financial institution that enabled the cybercrime may be the way to go, according to Jennifer Craven, civil fraud and asset recovery specialist at Pinsent Masons.

“The perception that there is nothing a victim can do to pursue crypto fraudsters is far from accurate,” she said in the statement. “However, pursuing a civil claim is not cheap and if you have been defrauded of one or two thousand pounds the economics wouldn’t stack up.”

Read more: Blockchain: What is it and what does it mean for insurance?

Shah said he expects regulators to put more pressure on cryptocurrency institutions, prompting them to comply with court and asset freezing orders.

Craven added that at a minimum, regulators were expecting crypto institutions to conduct proper know-your-customer (KYC) procedures, implement robust anti-money laundering controls, and fully cooperate with anti-fraud investigations.

“With the Financial Conduct Authority increasingly focused on the protection of vulnerable customers we anticipate more robust regulatory action to help stem the rise in this type of fraud,” she said. “The FCA is already looking at innovative tactics such as using social media influencers to warn of the risk of fraud in this area.”