How to Identify Unregulated Investment Scams?

In the UK, any firm must be regulated and authorised by the FCA to perform financial activities. Unregulated plans have a higher risk of losing invested capital, and regulated ones are regulated (backed) by the FCA and covered by regulatory compensation.  

An unregulated scheme is often based overseas, e.g. the eco-homes in Brazil or South Africa pa, LM oil plantations in Nigeria or airport car parking schemes, burial plots, shipping containers, and carbon credits in some forests where you get no contract against the investment. 

The firms offering the scheme claim they provide a money-back guarantee, but they offer returns that sound too good to be true.

How To Identify A Scam?

An unauthorised firm cannot seek help from the government if things go wrong. Only authorised firms have access to the FOS and FSCS protection. The government rules and protection apply to products designed for general investment instead of niche investments that offer huge profits in a short duration.

The government supports the CIS projects,  the collective investment scheme. In CIS, the victim can file a complaint to the regulatory bodies if the investment goes wrong. However, some firms sell unregulated products as CIS. 

Unregulated options include bamboo, graphene, hotels, gold, diamonds, land development, overseas agriculture and land, forestry, parking, storage, rare earth / precious metals, student accommodation,  wine and sustainable energy. 

Investors who want to buy into an overseas biofuel scheme, a Caribbean hotel, or a car park, which is often unregulated, need to be careful as they will not get anything in compensation from the government if things go wrong. Often, the investors who buy in scams seek high profits quickly through their earned money and suffer from losses of invested funds.

Clients who are adamant about buying in high-risk schemes need to check the details of the offering firms with their legal advisors, and they need to double-check the details related to unregulated products. 

One should be over-cautious in risky overseas investments. While the risk of failure is found in all investments, many complexities are involved in such deals. 

• New products are always introduced into the markets, and people find innovative products lucrative. It may give some profits to initial investors, but all investments have some risks. Instead of risking unregulated products, one can opt for regulated options a reliable seller offers.

• The sophisticated investors are often certified or self-certified retail clients but have extensive experience in complex instruments and procedures. Therefore, one should always evaluate the risks and rewards before considering such plans.

• The fraudster contacts the investors by email or phone, and one should avoid communication via email or phone number that comes through an unfamiliar source. 

• The caller often uses tactics to pressure the buyer to make an immediate purchase decision on the phone or commit to buying by depositing a small portion of the fund. Any authorised organisation will never use pressure tactics to sell products. 

• Unregulated firms offer you a guarantee – a guaranteed win or profits. Legitimate firms offer shares or precious metals opportunities but never guarantee a profit because it is impossible to predict the future price trends of precious metals or shares. 

• Those offering a guarantee to win in any scheme – are offering fake ideas. It indicates a warning if you are asked to keep the communication confidential and not tell about it to others in your family or friends.

• A scammer promises huge returns, but the plan to buy into the project can be complex. In most cases, the buyer has no direct ownership or ability to self-trade the property/product (e.g. land, student accommodation or share).  

• If the broker fails to respond, the victim has no other alternative way to ascertain the investment.

• At the start, the scammers overcompensate the buyers, pretend to be representatives of a popular firm, or pretend they are offering legitimate once-in-a-lifetime deals. 

• Then, they create confusion through complex systems and technical procedures and do not explain why they must follow such a technical course. The cold caller is based overseas, and they try to call from UK-listed phone numbers. It may not be easy to detect their location.

They ask for an advance fee or a deposit to claim the sale. Investors should not pay the upfront money without researching the options the callers offer. For example, they may ask to send bank details over phone calls, and they offer to transfer money through a secure method. Asking directly for bank details on the phone indicates risk.

Callers who tend to claim they have inside knowledge of stock markets or other such fields and they can help you benefit from their secret knowledge are unreliable.

Reject any unsolicited offers where the risks are high. Check the FCA warning list, and do not submit to pressure to invest in a project. Check the names of companies and directors and seek reviews about previous investments on web forums. Seek financial advice from a regulated agency.

If you have been scammed, contact the Consumer Helpline and report the scam to the government regulatory agencies. The fraudsters who have scammed you may contact you again as a part of the follow-up scam, where they ask for a fee to get back your investment money or offer to buy back.