Alan Hughes: FCA to make Google liable for online scams? | Money Marketing

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Alan Hughes


In January, the FCA published its Consumer Investments Data Review 2020 — the first in a regular series summarising its work to tackle consumer harm in the investment market.

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The scale of the task is huge and made considerably more difficult by technology and the ease with which it enables those causing harm to communicate with their targets.

In 2020 alone, the regulator opened 1,542 supervisory cases involving scams or higher-risk investments. There is no denying this is an enormous amount of work to get through.

The FCA’s own data strategy includes, ironically, investing in technology to spot problems earlier and this will be key in trying to limit harm. The bad actors will always stay one step ahead if the regulator uses an ‘analogue’ approach to threats mainly appearing through digital media.

Getting to the supervisory case stage is already very expensive in terms of regulatory resource. So one of the greatest practical challenges for the FCA will be attracting the talent to enable it to stay ahead of the fraudsters, and/or a sufficient budget to buy the very best technology.

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Investment in technology to stop the harm before it takes hold has to be part of a ‘prevention over cure’ strategy. A regulator trying to address activities causing consumer harm after the event will find itself engaged in a ‘whack-a-mole’ situation where it is always on the back foot. Stopping those activities as early as possible — in some cases before they have even started — will be key to keeping the workload manageable and significantly reducing the level of harm caused.

The FCA also refers to ensuring that “online platform operators” such as Google bear clear legal liability for the financial promotions advertised on them.

It says: “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. This work is relevant not just to the promotion of higher-risk investments but to our work to address online harms — including scams — more generally.”

This is very similar to a statement made in the FCA’s Perimeter Report 2019/20, published last September, so it is clearly something it is looking at very closely.

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‘Prevention’ strategy

It seems likely that a high proportion of those investing in higher-risk investments or who fall victim to scams first become aware of them online. If new legislation can assist the government and regulator in slowing down the flow of either illegal (scams) or inappropriate (higher-risk investments) information, this will feed in to a ‘prevention’ strategy.

The FCA also identifies that, while many of the investments are not scams, they are promoted using ‘high net worth’ or ‘sophisticated/experienced’ investor exemptions that bypass certain requirements, and in many cases would not be permitted at all for ‘standard’ retail investors.

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Many websites purporting to rely on such exemptions do not meet the relevant requirements anyway. If promoting to HNW or sophisticated investors, there are very prescriptive requirements around warnings and other criteria before those exemptions can be relied upon. Beefing up the action taken where promoters of high-risk investments do not follow rules could also act as a deterrent — although not much detail is given on this.

What the FCA appears to want to do is make the online platforms responsible in some way for policing this — for example, if a financial promotion appeared on Google, the platform would have a duty to make sure it had been approved by an authorised person or met the requirements of one of the exemptions. This would be a significant extension to its existing duties. Would the likes of Google take that lying down?

It would be a brave move by the FCA, but a necessary step change in the way it sought to prevent harm, and something that could make a real difference if successful.

Alan Hughes is partner at Foot Anstey





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