The Financial Conduct Authority (FCA) has warned that the rise in scams represents a serious threat to a legitimate financial services industry.
In a speech delivered at the City & Financial Global – FCA Investigations & Enforcement Summit, Mark Steward, executive director of Enforcement and Market Oversight, made the following observations.
The rise in unregulated advertisements has become a scourge, Steward said.
While numbers were increasing before the first lockdown, last year the FCA issued 1,204 specific warnings, which was an increase of 100% on 2019.
The volume continues to increase. This year to date the FCA has issued 632 specific warnings, “which means we are running at more than 100% of last year’s figures,” he said.
“An online investment scam is cheap and easy to manufacture”
This means ads can be manufactured on an industrial basis.
The same person or group may use different guises. False addresses and identities are very common which means scammers are operating anonymously.
Many sites emanate from overseas locations using fake UK addresses though often using what looks like a genuine UK telephone number.
Because of the way the search engines provide algorithmically personal search results, scammers target victims in the same way legitimate advertisers find customers.
Despite the red flags, investors remain highly vulnerable to too good to be true investment proposals.
In some cases, there is no investment proposition, suggesting such sites exist to harvest personal information from financially vulnerable consumers, in all likelihood for sale to other scammers, potentially for use in push payment frauds.
The velocity of online harm can achieve in days what takes months with an ‘old school’ cold calling boiler room.
Despite the increased reporting of fraud, fraud remains largely under-resourced by law enforcement with less than 1% of police resources devoted to fraud.
What the FCA can and cannot do
The Financial Services & Markets Act 2000 (FSMA), which sets out the FCA’s powers and remit, does not invest the FCA with any general power or authority to prosecute fraud.
The FCA is only able to prosecute fraud as a private prosecutor.
The FCA’s investigation powers can only be used to investigate regulated firms or those offences prescribed in s168 of FSMA which does not include fraud.
The FCA has no statutory power in respect of fraud and, if fraud charges are brought, they are private prosecutions, outside the ambit of the statutory remit given to the FCA by FSMA.
The regulatory perimeters
While the FCA does have statutory power over the use of false or misleading statements in relation to securities, those offences will not bite where the investment product is outside the financial promotions perimeter.
The perimeter, or perimeters (there is more than one), is an intricate boundary that can produce different results in terms of regulatory power, consumer protection and outcome, depending on some equally technical distinctions.
For example, following an analysis which Mr Justice Bourne described in the recent case of Donegan & Ors v Financial Services Compensation Scheme Ltd  EWHC 760 (Admin), para 32, 29 March 2021 as a ‘tortuous route’, it was confirmed that, if a bond is non-transferable, then it is outside the regulatory perimeter though it may still be within the financial promotions perimeter.
“Despite these circumstances, the FCA remains very active and engaged in tackling the scourge of investment fraud in this country,” Steward concluded.