Value of UK crypto-fraud reports increases by 41% in the past year, reaching a record £306m
FTX collapse caused a surge in the value of fraud reports – November’s £115m loss to fraud amounts to 1/3 of annual figure while Hong Kong embraces cryptocurrency opportunities
The value of reported cryptocurrency fraud in the UK reached a record high of £306m in the last 12 months (year end March 31, 2023)1, up 41% from £216.5m in the previous year, shows new data from international law firm RPC.
The value per fraud report has also jumped by 64% from £21.7k in 21/22 to £33.7k per reported fraud in 22/23.
The collapse of FTX in November 2022 caused a sharp increase in fraud reports in the UK, with £115.6m reported lost to fraud in the UK in that month.
Dan Wyatt, Partner at RPC, says: “These numbers show both the impact of crypto fraud on UK investors and more specifically the colossal impact that the collapse of FTX had on UK retail investors.
“The silver lining is that there are some signs that the impact of crypto fraud may finally be easing – the number and value of reports from December 2022 to March 2023 are down when compared with the previous year. This may indicate that investors are becoming more wary of crypto fraudsters or better educated about the risks in this market.
“Although it may of course only indicate that there was less investment in cryptocurrencies during this period than the previous period due to the crypto winter and wider economic conditions reducing investment appetites. Either way the value and volume of cryptocurrency fraud remains very high.”
Taking simple measures like educating oneself on the types of scams operating in the market and prioritising account security dramatically reduces the chance of falling victim to fraud. However, ultimately many scams are being executed with increasing levels of sophistication. As a result, even with better education on the risks and increased account security measures, the level of fraud in this sector is likely to remain substantial.
Collapse of FTX coincided with a spike in the value of November’s cryptocurrency fraud reports
RPC says fraud reports from this period are likely to include those directly linked to FTX. But they will also include reports relating, for example, to Ponzi schemes exposed by the rapid depreciation of cryptocurrencies in the wake of the FTX collapse. As in the fiat financial markets, Ponzi schemes often fall over when there is a substantial crash in asset valuations, liquidity and/or inward investment, making it impossible for the schemes to continue.
RPC comments that it is also seeing another alarming trend of crypto recovery scams. Fraudsters impersonate staff at companies purporting to offer cryptocurrency tracing and recovery services, often cloning company data to give the appearance of legitimacy. They write to crypto-fraud victims, saying they are able to return stolen assets for a fee, usually for a substantial advance payment. Once this is paid, they vanish.
Dan Wyatt, says: " Both RPC and the Crypto Fraud and Asset Recovery (CFAAR) network, of which RPC is a Founder Member, are seeing more crypto recovery scams. They can be particularly distressing for victims of crypto fraud who, having already been scammed, are scammed again. Please treat any unsolicited third-party approaches with extreme caution, particularly any requesting a payment upfront. "
CFAAR is an international network of legal professionals, forensic accountants, corporate intelligence officers and asset recovery experts, which was established as a resource to speed up legal action against crypto-related fraud.
Hong Kong embraces cryptocurrency opportunities
Meanwhile, Hong Kong is responding to the issues of crypto fraud by introducing new, regulated systems.
Jonathan Crompton, Partner of RPC in Hong Kong and a founding committee member of the CFAAR Hong Kong Chapter, says: "Hong Kong has seen its fair share of crypto-fraud. The Courts are issuing judgments to let victims know how they can try to recover their assets. However, Hong Kong financial regulators are also weighing in with their own rules."
The Securities and Futures Commission's new, mandatory Virtual Asset Trading Platform regime is due to come into effect on 1 June 2023. On 18 May, the Hong Kong Monetary Authority also announced that 16 financial firms, including traditional banks, digital-only banks, payment services providers and Ripple Labs (a token issuer), would take part in a e-HKD Pilot Programme in 2023. The purpose of the pilot is to test use cases for a Hong Kong Dollar Central Bank Digital Currency (CBDC).
Jonathan explained that these developments represent "bold but considered" moves at a time when the fallout of the FTX collapse is still being worked out. Jonathan says: "The Hong Kong regulators have been exploring cryptocurrencies for several years and now feel confident that they can introduce a new, relatively conservative, regime that will make Hong Kong stand out as a virtual asset trading hub."
The value of UK cryptocurrency fraud has increased year on year
[1] Data provided to RPC by Action Fraud. Action Fraud is the UK Government's national reporting system for fraud and cyber-crime.