As Online Investment Scams Escalate, City Regulator Hits Back

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May 2021
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As Online Investment Scams Escalate, City Regulator Hits Back

The Financial Conduct Authority (FCA) is “upping its game” against the “scourge” of online investment scams, aiming to spot suspicious advertisements the same day they’re posted.

Pyramid and Ponzi schemes have been bilking unwitting investors out of their cash for decades, convincing them to invest in worthless or non-existent assets. But the internet has given con artists access to an even wider, younger audience of savers and strivers, eager to spin their earnings into enviable #lifestyles. 

TikTok videos run down forex tips, Reddit communities follow the dips and rolls of the cryptocurrency markets and Instagram posts showcase supercars and gold watches. And a portion of them is trying to fleece would-be investors.

The coronavirus pandemic, hitting the finances of many Britons and making us more reliant on and comfortable with online transactions, has been another boon for scammers.

Online investment fraud runs the gamut from social media posts teasing returns that are too good to be true to bogus cryptocurrencies. In a common tactic, swindlers imitate legitimate investment firms, even cloning their websites, to attract investors.

The FCA has issued 632 specific warnings about investment scams this year, more than double the number it issued in the same period last year. And the 1204 warnings it issued last year were double the number issued in 2019.

The toll of these scams can be enormous. Action Fraud found that Britons lost £78 million last year by investing with firms imitating legitimate financial institutions, with average losses of £45,242.

Many never recoup those funds. Recent data from the Lending Standards Board revealed that banks judge the consumer to be at fault in 67% of investment fraud cases. This means the consumer isn't eligible for compensation under the voluntary code protecting victims of bank transfer fraud.

Investment scams also pose a “threat to a legitimate financial services industry,” Mark Steward, executive director at the City regulator, said. "Their existence undermines the societal trust that is necessary for markets to work well."

To tackle the problem, the FCA has increased its “proactive monitoring of the internet.” It’s also become quicker at identifying suspicious adverts, issuing warnings to the public and contacting digital platforms to have the marketing removed. 

But it wants to react even faster, aiming to develop a “dragnet to capture suspicious ads on the same day or within 24 hours after they first appear,” Steward said.

The FCA is also engaging with social media sites about recent changes in the law which require them to comply with section 21 of the Financial Services and Markets Act 2000. The law “prohibits the communication of invitations or inducements to engage in investment activity by persons other than those issued or approved by FCA authorised firms.” 

While its early engagement with these social media sites has been positive, the FCA has suggested it could act if it doesn’t see compliance.

The regulator is also encouraging the government to include financial harm in its new Online Safety Bill, which compels social media sites to remove illegal and harmful user-generated content.

Which? consumer group echoed the call. Rocio Concha, director of policy and advocacy at Which?, said: “The Government has recognised that the major online platforms we interact with every day have a responsibility to protect users from scams.

“The Bill must give them a legal responsibility to prevent, identify and remove fake and fraudulent content on their sites, including the vast number of adverts and websites posted by fraudsters.”

The FCA will also continue to pursue scammers, “using our powers to seek restitutionary outcomes as well as to bring criminal prosecutions where we can,” Steward said.

He noted that the FCA currently has 50 active investigations, involving 183 suspects. It recently obtained compensation orders totalling £3.6 million against four individuals running investment schemes without regulator authorisation.