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Big fraud: FCA proposes regulation of tech giants in relation to financial scams

On Monday the Financial Conduct Authority (FCA) released its review of consumer investments data for 2020 (the Review). In the Review the FCA argues that online platforms should “bear clear legal liability for the financial promotions advertised on their platforms”.

This proposal comes as the FCA revealed that 2020 saw a sharp increase in scams and promotion of higher-risk investments as fraudsters sought to profit from the Covid-19 pandemic.

According to the Review:

  • consumer enquiries about potential scams rose 23% on 2019 to almost 20,000. Investment scams accounted for 57% of those enquiries.
  • the FCA opened 1,542 supervisory cases involving scams or higher risk investments. 135 related to pensions scams.
  • there were 24,366 reports of potential unauthorised activity for the period 1 January – 31 October 2020, compared to 20,300 reports in 2019.
  • 1,053 consumer alerts about unauthorised firms and individuals were issued in the period 1 January – 31 October 2020, which is 82% higher than in 2019.

The FCA has identified as a particular problem the role that search engines and social media platforms play in communicating financial promotions. Section 21 of the Financial Services and Markets Act 2000 prohibits persons from promoting financial services and products, unless they are an authorised person. There are limited carve-outs from this prohibition in respect of high-net worth individuals and sophisticated investors, which persons promoting financial services and products online often attempt to use. However, most of the websites reviewed by the FCA fail to meet the requirements for those exemptions to apply. Furthermore, in late 2019 only approximately 20% of websites reviewed by the FCA were approved by an authorised person. Since August 2020 that figure has dropped to almost 0%.

The Review criticises the role of online platforms in facilitating communication of scams and high-risk investments to consumers and notes that, together with HM Treasury, the FCA is considering what further regulatory powers it may require. One such proposal is an extension of the financial promotions regime to cover online platform operators, to hold them legally liable for financial promotions advertised on their platforms. This would require online operators to be more pro-active in policing the advertisements on their platforms or risk being subject to regulatory penalties.

Whilst these proposals are not yet concrete, the FCA’s calls for online platforms to take greater responsibility in relation to scams and risky investments is an indication that regulatory change may well be on the way.

We think online platform operators, like Google, should bear clear legal liability for the financial promotions advertised on their platforms. We are currently considering with the Treasury the application of the financial promotions regime to these platform operators and whether we need any new powers over them.

Tags

corporate crime, fca, fraud, financial, tech, regulation, social media

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