The Financial Conduct Authority (FCA) is talking to social media firms about a law change that makes them more liable for financial promotions, as part of a tougher approach to tackling online investment fraud.
The City regulator has noted an increase in investment scams advertised online.
Last year, it said it issued 1,204 specific warnings of this kind – a 100 per cent increase on 2019. This year to date it has issued 632 specific warnings, which means it is running at more than 100 per cent of last year’s figures.
Mark Steward, executive director of enforcement and market oversight at the FCA, said “an online investment scam is cheap and easy to manufacture” and “because of the way the search engines provide algorithmically personal search results, scammers target victims in the same way legitimate advertisers find customers”.
Speaking at the City & Financial Global – FCA Investigations and Enforcement Summit, Steward said that the FCA has changed its approach to meet these new challenges.
“In the case of an online scam, the marketing pitch to the victim is public, searchable and available to everyone,” he said.
“This presents a unique opportunity because it means for the first time, we can detect scams at the same time as the scammers are luring their victims. Our worry about a precipitate warning causing evidence and money to go missing is less of a concern if we can develop a dragnet to capture suspicious ads on the same day or within 24 hours after they first appear.”
Steward also said that the FCA’s warning list is updated on a daily basis and urged consumers to avoid dealing with firms on the list.
He warned that regulated firms that assist firms on the warning list may face action from the FCA.
Steward went on to lay out the FCA’s new approach to working with social media firms.
“While section 21 of the Financial Services and Markets Act 2000 prohibits the communication of invitations or inducements to engage in investment activity by persons other than those issued or approved by FCA authorised firms, there is an exemption for electronic communications in which the person is merely a conduit for content generated by another person,” he said.
“Importantly, there was also a general exemption for electronic communications made from an establishment in an EEA state other than the UK, which derived from EU legislation. However, this exemption no longer applies in the UK since the end of the transition period on 31 December 2020.
“We have been engaging with social media firms about the change to the law which requires them, for the first time, to comply with section 21 when providing any value adding services…The initial engagement has been encouraging.”
He cited FCA chief Nikhil Rathi, who said last month, “’We are prepared to act if we don’t see effective compliance.”
Steward also welcomed proposals for a new online safety bill, announced in the Queen’s Speech last week, but questioned whether it goes far enough.