Crypto classed as a growing risk

The Home Office has given a blunt assessment of crypto’s relationship to crime. Syedur Rahman of Rahman Ravelli considers its analysis and the nature of the challenge.

A policy paper published by the UK’s Home Office makes the government’s view of crypto assets clear. And it is not a flattering one.

The publication is focused on how to tackle fraud against individuals and businesses between now and 2029.

It describes cryptocurrencies as posing “growing risks’’ for consumers, who are “deceived into willingly transferring money” through a range of scams online and via messaging. The report openly admits that “vulnerabilities remain” when it comes to combating fraud in emerging areas such as crypto.

The Home Office paper cites the National Crime Agency’s (NCA’s) launching of a campaign last year to help people identify fraud, the Serious Fraud Office’s (SFO’s) recently-enhanced crypto investigation capabilities, and the Financial Conduct Authority’s (FCA’s) efforts since 2023 to tackle unscrupulous crypto marketing.

Framework

The paper also outlines the regulatory framework for digital assets that looks set to come into effect in October next year. This framework, which will require companies to obtain FCA authorisation and comply with its rules, will help tackle crypto-related fraud, according to the paper.

The framework focuses on three parts: disrupt, safeguard and respond. Disrupt represents the government’s focus on disrupting the tools, methods and systems used and exploited by criminals. Safeguard focuses on strengthening the resilience to fraud, to ensure fraud is recognised and detected before it happens. Respond focuses on ensuring there is a coordinated, victim-centred response to fraud.

The new framework will certainly go some way to ensuring legitimate crypto companies are acting legally and responsibly. But while it will be a means to “weed out’’ and / or hold to account those crypto enterprises that are being run to make illegal gains, there can be no guarantee that they will automatically disappear when faced with the new regime.

The Home Office paper recognises the size and nature of the problem. But there are plenty of steps that will need to be taken if recognition of the problem is to be followed by its removal.

The paper confirms more information about the previously-outlined Online Crime Centre (OCC), which will focus on fraud and cybercrime. But while the question of how effective the new framework may be is hard to determine at this stage, there are aspects of it that could be seen as weaknesses that could limit its impact.

For one, the transnational problem of crypto fraud has not been solved. Stolen funds are rapidly rerouted and shifted from different payment services. While there are MoU’s with Nigeria and Vietnam, which are helpful, further bilateral agreements must be agreed to effectively combat the fraud ecosystem.