Unauthorised firms increasingly tout AI ‘hybridʼ products

Unauthorised firms are increasingly touting products and services featuring artificial intelligence (AI) combined with another asset class such as crypto or foreign exchange (forex). Compliance Corylated found European regulators are adding more of these unauthorised ‘hybridʼ firms to their warning lists. Almost one-fifth (18.1%) of warnings from European financial regulators indicated unauthorised or fraudulent offerings claiming to be “AI-powered” investment tools.

Corlytics data shows 365 of the 2,000 most recent warnings are related to trading firms, followed by cryptocurrency, forex and AI technology. Most of the warnings involve national competent authorities dealing with unlicensed companies within their jurisdictions. The UK Financial Conduct Authority (FCA) is particularly eyeing the digital assets space, with 89 warnings on cryptocurrency, blockchain and stablecoin companies since October 2024.

The US Commodity Futures Trading Commission (CFTC) also has warned that fraudsters are exploiting public interest in AI to tout automated trading algorithms, trade signal strategies, and crypto asset trading schemes that promise unreasonably high or guaranteed returns.

“Don’t believe the scammers. AI technology can’t predict the future or sudden market changes,” the CFTC said in a statement.

AI-powered investment tools

The European Securities and Markets Authority (ESMA) recently issued a warning over the use of AI for investing on March 25. “There is a growing number of websites and apps that offer AI-generated trading ideas and suggestions, often in exchange for expensive monthly or yearly fees, using names such as stock picking or stock signal,” said ESMA.

The EU watchdog raised concerns over public online AI tools that provide “highly convincing” and supposedly “professional” advice on investments. Some AI-based trading bots even enable automated trading with promises of the “highest profits”.

ESMA warned that these AI-powered tools are not subject to the same compliance standards as authorised investment instruments so users may not be able to appeal to a financial ombudsman if something goes wrong.

By analysing keywords in advertised company names, the data highlighted a trend of unregistered hybrid firms — combining financial products and illicit activities across multiple sectors.

For example, Spain’s National Securities Market Commission (CNMV) issued a warning on Bitcoineer AI on April 7. The trading platform claimed to an “automated crypto trading system” with real-time market advice from “CySEC-licensed brokers”, according to its website. The Spanish regulator flagged Bitcoineer AI for providing unregistered financial instruments, which violated Article 129 of the Spanish Securities Markets and Investment Services Act.

Fake forex firms in the UK

The UK FCA’s warning list also revealed 1,789 unauthorised forex brokerage companies in the UK, cloning FCA-authorised firms, offshoring suspicious activities and operating without licences.

The FCA published a statement in 2023 saying: “People are being increasingly targeted by unauthorised forex trading and brokerage firms offering the chance to trade in foreign exchange, contracts for difference, binary options, cryptoassets and other commodities. They promise very high returns and guaranteed profits, either through a managed account where the firm makes trades on the investor’s behalf, or by using the firm’s trading platform.”

While the FCA warnings raise awareness on the listed companies, some are still accessible to the public today. For example, Europa Trade Capital received a FCA warning in 2024 for operating without authorisation, adding to the warnings in 2022 from other regulators in Austria, France, Belgium and Germany. However, the Grenadines-based firm remains accessible in the UK, as the firm has continually changed its website domain over the years.