Money 101 · Module 6 of 6: Risk · Lesson 3 of 3 · 3 min read
How to spot an investment scam
Investment scams often look professional, with smart websites, friendly contacts and convincing charts. The best protection is a few red flags you can recognise and one check you always make before sending money.
Red flags to watch for
One red flag is reason enough to stop and check. Several together are a strong warning.
High returns that are "guaranteed" or come with "no risk"
Pressure to act fast: a bonus that ends today, a limited number of places
Contact you did not ask for – a call, a message, an ad or a new online friend
Requests to pay in crypto, by gift card or to a personal bank account
Requests to install remote-access software on your device
Small early withdrawals that work, then fees or "taxes" you must pay before you can take out the rest
A name or website that is almost the same as a real, authorised firm
Check that the firm is authorised
In the EU, firms can only provide investment services if they are authorised to do so by an EU regulator. Authorised firms appear in the public register of the regulator in the country where they provide those services, and ESMA also runs a public register of authorised firms.
You can ask the person directly: "Are you authorised to sell me this investment product?" If they say no, do not buy anything and stop dealing with them. If they say yes, check the register yourself rather than trusting a link or a registration number they send you.
It also helps to search the firm's name in IOSCO's I-SCAN, which gathers warnings from securities regulators about firms that are not authorised. Some scam sites copy the name of a real firm, so compare the website and contact details with the register.
Why it matters
If you deal with a firm that is not authorised, you are not protected by regulation. You can lose access to investor compensation schemes and to complaint services such as a financial ombudsman if things go wrong.
If you think you have been targeted or have already paid, stop sending money, keep all messages and receipts, and contact your bank and your national regulator. Be careful of anyone who offers to recover your money for a fee – that can be a second scam.
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Key takeaways
Guaranteed high returns, pressure and unusual payment methods are red flags.
Always check the official register of authorised firms before you send money.
Dealing with an unauthorised firm means losing the protections regulation gives you.
Try it
Use the full checker to look up a firm in the official registers and warning lists before you invest.
3 questions. Pick an answer to see why it's right or wrong.
Someone offers you a "guaranteed" 20% a month with no risk. What does that suggest?
Not quite. Pressure to act fast is itself a red flag.
Right. Guaranteed high returns with no risk is the first red flag in the list.
Not quite. No investment offers high returns with no risk.
Show the answer
A red flag for a scam – High returns that are "guaranteed" or come with "no risk"
Who can provide investment services in the EU?
Not quite. A website proves nothing about authorisation.
Right. Authorisation is required to provide investment services.
Not quite. Company registration is not the same as authorisation to provide investment services.
Show the answer
Only firms authorised by an EU regulator – In the EU, firms can only provide investment services if they are authorised to do so by an EU regulator.
A firm sends you a link to "its" registration page. What should you do?
Not quite. Paying first proves nothing and puts your money at risk.
Right. Go to the regulator's register directly and compare the details.
Not quite. Scammers can fake pages and copy real numbers.
Show the answer
Check the official register yourself – If they say yes, check the register yourself rather than trusting a link or a registration number they send you.
Education, not advice. I'm not a financial adviser and I don't know your situation. These tools show the maths behind common rules of thumb; check important decisions with a qualified professional. Full disclaimer.
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