The UK financial watchdog has warned that social media influencers are regularly paid by scammers to advertise speculative crypto coins, some of which do not even exist.

At the Cambridge International Symposium on Economic Crime, Financial Conduct Authority (FCA) chairman Charles Randell reiterated concerns about fraudulent content on social media.

The chair used the example of Kim Kardashian, who was paid to ask her 250 million Instagram followers to join the ‘Ethereum Max Community.’

Randell said that while the celebrity was in line with the social media platform’s rules by disclosing the promotion as an Ad, she did not have to tell her followers that Ethereum Max – not to be confused with Ethereum – was a speculative digital token created a month before by unknown developers.

“Of course, I can’t say whether this particular token is a scam,” he explained. “But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.”

Randell added: “Some influencers promote coins that turn out simply not to exist at all.”

Cryptocurrencies aren’t currently regulated by the FCA and are also not covered by the Financial Services Compensation Scheme. With this in mind, the authority warned that people who invest in digital assets should be prepared to lose all of their money.

“There are no assets or real world cashflows underpinning the price of speculative digital tokens, even the better known ones like Bitcoin, and many cannot even boast a scarcity value,” said Randall. “These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle.

“We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”

It’s estimated that around 2.3 million Brits currently hold some form of digital token.

According to the FCA, 14 per cent of those investing in these virtual currencies use credit to buy them, increasing exposure to loss.

12 per cent, roughly 250,000 people, wrongly believe that they will be protected by the FCA or compensation scheme if their investment goes wrong.

The FCA chairman said that the potential level of consumer harm that speculative tokens bring raises the question of whether the activity of creating and selling the tokens themselves should be brought within FCA regulation.

At the moment there is a live debate happening across major financial jurisdictions about whether regulators need more powers and tools to regulate cryptocurrencies.

Part of the hesitation to govern digital assets, explained the FCA, is that in the UK there already exist several purely speculative activities which it does not regulate. For example; buying gold, foreign real estate, foreign currencies, or even old school tokens like Pokemon cards.

“There is no shortage of consumer harm in many of those markets,” said Randell. “So why should we regulate purely speculative digital tokens? And if we do regulate these tokens, will this lead people to think that they are bona fide investments? That is, will the involvement of the FCA give them a ’halo effect’ that raises unrealistic expectations of consumer protection?”

A Treasury consultation on the UK approach to cryptoassets and stablecoins closed earlier this year, and the FCA is working closely with the Treasury and Bank of England as part of the Cryptoassets Taskforce.

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