Managing the growing threat of digital asset fraud

The world of digital assets is a complex one, underpinned by a high-risk, high-return mantra. As more businesses invest in digital assets due to the appeal of blockchain technology, digital assets are gaining popularity within the corporate sphere. While highly rewarding, digital assets present unknown risks, which when unmeasured and unregulated, can quickly erode the foundations of a business.

Chris Bristow, a Corporate Insolvency Adviser at Real Business Rescue, runs through the importance of due diligence in managing the growing threat of digital asset fraud.

Upgrading due diligence protocol

Although digital assets are now mainstream, the risks are highly sophisticated in nature which gives rise to complex schemes engineered by fraudsters, where companies are often the bait. With much of the digital asset world yet to be explored, remain vigilant and ensure that due diligence protocols are fit for purpose.

Fraudulent offerings and hidden asset trails

From business opportunity fraud to fraudulent initial coin offerings, the number of crypto scams targeting businesses is rising. Digital assets are mostly unregulated and therefore offer no protection to the investor. Therefore, you must take steps to minimise financial losses and reputational damage by investing in financial education and rigorous due diligence systems.

• Financial education – Understand the dangers and hidden complexities of digital assets to navigate investments with care. School staff on the risks associated with digital assets so investments can be tracked responsibly.
• Due diligence – Take extra steps to rigorously assess financial risk, such as tapping into technology. Due diligence software can raise the alarm bells at the first sign of suspicious activity.

From hidden supply chains to false guarantees of returns, familiarising yourself with the red flags associated with digital asset fraud can mitigate risk and prevent financial losses.

Batting away the risk of insolvency

An FCA report found that 12% of UK adults own cryptoassets, which is equivalent to 7 million people. As more consumers class cryptoassets as part of their wider investment portfolio, the FCA are cracking the whip on cryptoasset regulations by phasing in new rulings, including guidance on marketing and promoting cryptoassets.

Digital asset fraud has the power to upend a business, as a successful fraud attempt can drain wealth, tarnish the reputation of a business and give rise to the risk of insolvency. This is where early intervention from a licensed insolvency practitioner can serve as a lifeline.

A licensed insolvency practitioner will play a pivotal role in preventing financial health from deteriorating and protecting company wealth. They will also obtain breathing space during which to devise an actionable rescue roadmap.

An accountant will also play an equally important role in protecting digital assets as fraudsters establish a new playing field and target corporate entities. From assisting in the recovery of digital assets to supporting the development of risk and compliance frameworks, every stakeholder and professional provider, from the accountant to the insolvency practitioner, must act in unison to minimise risk exposure and protect digital assets.