The Financial Conduct Authority (FCA) has warned that there are legal limits to its power to combat online scams, despite the success of its recent ScamSmart campaign, which reached four out of five pension holders aged 45-64.
In a letter to Work and Pensions Committee (WPC) chair, Stephen Timms, FCA chief executive, Nikhil Rathi, warned that there are limits to what the FCA can do to tackle online harm under the legal framework within which it works.
For instance, not having the statutory power to investigate fraud and gather evidence from unauthorised firms where there is no FSMA nexus.
He also warned that exemptions in the Financial Promotion Order for High Net Worth (HNW) and Sophisticated Investors are a “significant vulnerability” in the financial promotion regime.
Rathi explained that this exemption allows unauthorised firms to issue financial promotions to HNW and Sophisticated Investors without having to comply with any of its rules, even the basic clear, fair and not misleading requirements.
"We have seen evidence that strengthening our rules has resulted in more firms using the exemptions to market high-risk investments to ordinary consumers, often online," he added.
“We have also seen the exemptions being exploited by bad actors to target consumers with inappropriate high-risk investments or scams. Leaving this aspect of the legislation unchanged will continue to result in significant consumer harm that the FCA is unable to mitigate."
However, Rathi also highlighted the latest figures from its ScamSmart pension fraud campaign, which ran between 1 July to 30 September 2020, pointing out that this successfully reached four out of five pension holders aged 45-64, the group most at risk.
This was mainly driven by strong TV recognition figures, with 77 per cent of respondents recognised the ScamSmart TV campaign.
The campaign has also prompted action amongst savers, with 37 per cent of the campaign target audience indicating that they would visit the ScamSmart website to check whether an organisation is legitimate in order to protect themselves against pension fraud in future.
“We are currently working on the new burst of the ScamSmart Pensions campaign which will run from 5 July – 31 August 2021 across the same channels as last year, and I look forward to giving you an update on that campaign in due course,” Rathi added.
Despite these figures, Rathi emphasised that legislative changes are needed, with the FCA confirming that it has spent “close to £500,000” on Google Adwords in 2020 in an effort to warn consumers about high-risk investments.
“We have also had to contact Google to inform them of adverts that not only breach our rules, but their own rules and policies,” he continued.
“Given this, we continue to believe the best way to protect consumers from illegal online scams is for financial harm to be included as an online harm in the government’s proposed Online Safety Bill and we believe these provisions should include online advertising (responsible for the majority of fraudulent activity) as well as user-generated content.
“Without legislation, we are obliged to negotiate separately with every online platform, to persuade them to provide gateway protection to consumers.
"This will produce a patchwork of inconsistent approaches, take us considerable time and create gaps that can be exploited by scam advertisers.
“Legislation can help avoid these gaps and ensures there is a level playing field for all online platforms and consistent, enforceable standards to protect consumers.”
Recent Stories