Austrian Financial Market Authority: Announcement on preventing virtual currencies and related investment risks

The Austrian Financial Market Authority (FMA) recently issued an announcement warning consumers to be careful with digital currencies, especially when it comes to virtual currency businesses and investments.

European regulators have always been skeptical about virtual currencies, and the FMA’s announcement also represents their support for their European “allies”.

The announcement was officially released on Monday, reminding consumers that digital currencies are not controlled by regulatory authorities and therefore are not under the jurisdiction of the FMA. Here is the full text of the announcement:

Virtual currencies are becoming more and more widely available online. Terms such as 'digital currency', 'alternative currency', 'cryptocurrency' or similar currency structures are considered new types of currency or token options. The FMA specifically points out that this type of goods or services are currently not under the jurisdiction of any department, including the FMA. Therefore, the misuse of cryptocurrencies is likely to cause criminal problems, and the probability of cryptocurrency scams occurring is high, but targeted law enforcement and claims are very difficult or even impossible to achieve. Therefore, the FMA warns consumers to be highly vigilant when using virtual currencies.

In addition, the FMA has recently received a number of inquiries regarding virtual currency business models or investment products. Currently, there is no need to apply for a license for this type of business model and product, so it is not within the scope of supervision. The promotion of this type of product generally has a fixed model. For example, some products involve the purchase and investment of software or hardware that can generate virtual currency or can be used for virtual currency transactions, usually with a high rate of return; some products directly involve virtual currency, and in order to ensure a high rate of return, investors must first purchase relevant information or training materials.

Many similar scams are based on 'multi-level direct selling schemes' (Translator's note: This model is very similar to pyramid schemes, but the law has not yet banned it, the most typical example is Amway), except that virtual currencies use the network marketing model. This type of marketing model is usually based on an elaborate system where old customers (upstream) recruit new customers and sellers (downstream), which can easily develop into a pyramid scheme: the expenses of early participants are made up by new participants, and in the long run, the system will collapse due to pure mathematical or statistical problems.

Article 168a of the Criminal Code clearly states that this is a pyramid system that is prohibited by law:

'Speculative scams usually promise participants high economic returns. Participants need to continue to recruit more participants under the same conditions, and the final economic returns are entirely dependent on the subsequent participants' compliance with the corresponding terms. ' (Translator's note: that is, the more downstream players are developed, the higher the rate of return.)

Therefore, the FMA solemnly warns consumers to remain vigilant when facing similar virtual currency business models or investment products. The rules and systems of such financial products are not subject to the jurisdiction and supervision of any department, including the FMA, and can easily be abused and turned into scams.

The legal assessment of criminal offences caused by this type of business model is not within the scope of the FMA's responsibilities, but is the responsibility of prosecutors or criminal courts. Once the FMA is aware of suspected criminal signs, we will report them to the prosecutor or criminal court based on the known facts.

Virtual currencies and related business models and financial products are based on cross-border operating rules, so many foreign "sister" agencies and consumer protection organizations have issued announcements on this. FMA recommends that consumers first check specific information before participating in such investments to find out whether there are warnings for relevant suppliers on the Internet.

Pyramid scams and MLM activities related to Bitcoin and other digital currencies are all over the world. Recently, a Bitcoin MLM organization in Vietnam was exposed, defrauding more than 100万美元. Last month, a pyramid scam that abused Bitcoin occurred in Vietnam, so the government also issued a warning to the public to use cryptocurrencies with caution.

In this announcement, FMA directly pointed out the recent pyramid scheme OneCoin. The Belgian Financial Services and Markets Authority issued a warning to the public to stop using OneCoin for the first time in June this year. Unlike Bitcoin, OneCoin's system is centralized, and regulators in many countries have denounced it as a pyramid scheme. After Belgium issued the announcement, the UK Financial Conduct Authority also publicly warned consumers to be careful with OneCoin.