Interest in whisky investing is on the rise, as the value of rare casks and bottles soars.

Last year a cask of rare Scotch whisky sold at a private auction for a record-breaking £16m. At the same time the volume of single malts sold at auction leapt 23pc in 2022 on the back of soaring investor demand, with prices leaping by more than a fifth, according to Scottish investment bank Noble & Co, in whisky auctions.

Speculators are drawn by the potential to make good money betting on the price trajectory of a particular dram, as well as generous tax breaks (there is no capital gains tax to pay on the profits).

But investors can face serious financial losses, owing to a chronic lack of regulation and transparency in the sector.

The Advertising Standards Authority, the advertising watchdog, has launched a probe into online adverts claiming consumers can make returns as high as 20pc.

It said it has identified adverts about whisky investment as “an area of interest” and was currently examining a string of ads to assess whether they “make clear the nature and risks of investments”.

Industry insiders have also raised concerns about investment brokers using misleading marketing material.

If you have ever considered investing in whisky, you may recognise this statistic from the Knight Frank Luxury Investment Index, which says that the value of rare whisky has risen 535pc over ten years.

Often blazoned across the websites of whisky investment companies, the figure makes for a compelling investment case.

The only trouble is, depending what kind of whisky you invest in, it can be completely irrelevant.

This is because Knight Frank’s index only tracks the performance of rare bottles of whisky, as opposed to all types of rare whisky, including cask whisky.

Despite this, many cask companies will reference the index in their promotional materials, at the risk of giving customers the impression that they will get unrealistically high returns on their investments.

This is just the tip of the iceberg when it comes to claims within the whisky industry which have the potential to blindside investors, whether accidentally or intentionally.

Last week, the cask company Whiskey & Wealth Club sent an email to customers saying it was now regulated by the Financial Conduct Authority, the City watchdog.

They wrote: “This is a massive deal for us, our clients and anyone wanting to get involved in the industry because it sets us apart as the only cask ownership business in Britain to be authorised and regulated by the FCA.”

However, whisky investing is not regulated by the FCA.

After The Telegraph contacted Whiskey & Wealth Club with concerns that investors could incorrectly conclude they had FCA protection, the company said that it was only authorised by the FCA for credit broking.

A spokesman for Whiskey & Wealth Club said their email “was not misleading, as we do have FCA authorisation” but that it recognised the message could cause confusion. “As a result, we will be making a clarification statement to our customer base.”

They added: “We would like to express our frustration over, and disapproval of, unscrupulous operators in the whisky cask industry who mislead customers and investors with their marketing materials and promotions. We stand apart from such ‘bad players’.”

Mark Taber, a consumer finance expert, raised concerns over the physical security of whisky investments, saying casks were “open to abuse” because while the whisky matures, the cask must sit in a warehouse for three years.

“Even if it’s a legitimate company, it’s hugely risky because the investor doesn’t hold the physical asset. At least if you buy bottles, you can keep them in your house.”

Blair Bowman, a whisky broker, said that some companies are selling casks at “ridiculous prices”, taking advantage of the consumer’s lack of knowledge in a sector with no regulatory body and no pricing lists.

Investors sometimes have no proof they own the asset, which could leave them high and dry if something goes wrong.

A document called a “delivery order” is required to transfer ownership from the company to the customer. “Instead some companies give you something called a ‘certificate of ownership’,” Mr Bowman said, “which means the cask stays on the account of the company. My main concern is that if the company went AWOL and disappeared, you’d have no proof that that cask was yours”.

How to protect your money

As with any investment, if the provider is promising “guaranteed” returns, then this is reason to be immediately suspicious.

If a whisky investment company asks you to get a Warehouse Keepers and Owners of Warehoused Goods (WOWGR) licence, alarm bells should ring. This is typically only required for warehouse keepers, Mr Bowman said – an ordinary investor should not need one.

If you want to buy a private cask, then “delivery order” is the phrase you need to look out for, as this will give you proof of ownership in case something goes wrong.