Is the UK FCA Doing Enough to Stop Investment Scams?
- According to UK Finance, investment scam victims lost £171.7 million in 2021.
- The FCA says it can only prosecute fraud as a private prosecutor.
Across the United Kingdom, various forms of financial scams are rampant. In fact, according to UK Finance’s 2021 Annual Fraud Report, over £1.3bn was stolen by fraudsters last year.
Of the stolen amount, unauthorized financial fraud losses through payment cards, remote banking and check totaled £730.4 million in 2021.
Luckily, banks and card companies were able to fence off £1.4 billion in unauthorized fraud.
Regardless, UK Finance, which represents about 300 firms scattered across the country, recorded 195,996 incidents of authorized push payment (APP) scams.
APP is a type of scam where victims of fraud are deceived into making a payment to an account controlled by a con artist.
Victims of these types of scams lost grossly £583.2 million in 2021, according to the fraud report.
In fact, UK Finance in the report disclosed that APP fraud rose by 27% in 2021 as more people worked from home following the pandemic.
Additionally, UK Finance categorizes authorized push payment scams into two broad categories: malicious payee and malicious redirection scams.
Malicious payee scams include purchase, investment, romance and advance-fee scams.
On the other hand, malicious redirection scams include invoice, mandate, CEO fraud and impersonation scams.
This means that an investment scam is a type of push payment scam.
Soaring Investment Scams in the UK
According to UK Finance, victims lost £171.7 million in 2021 to investment scams.
Investment scams happen when a criminal convinces their victim to move their money to a fictitious fund or to pay for a fake investment. They achieve this by promising a very high return.
“These scams include investment in items such as gold, property, carbon credits, cryptocurrencies, land banks and wine,” UK Finance explained.
Also, according to the professional body, although investment scams accounted for only 6% of the total number of authorized push payment scam cases in the UK in 2021, they accounted for the largest proportion (29%) of losses from all eight APP scam types.
This is due to their nature, the level of sophistication of the criminals involved and the higher sums involved.
Moreover, UK Finance’s data shows that losses from investment scams skyrocketed 57% in 2021. Similarly, the total number of cases of investment scams surged 48% to 12,074 cases,
However, the data shows that the value of funds returned to investors jumped 86% from £40.2 million to £74.6 million.
Vince Howard, the Marketing Director of Opis Group Limited, a British blockchain technology company, told Finance Magnates that a lack of complete oversight from the government on the emerging financial ecosystem means there will be little impact on efforts to stop scammers.
“Cryptocurrency and blockchain technology are relatively new, and given that, scams are happening all too often, and the UK is no exception,” Howard said.
“The crypto winter has led to an increase in this trend, with the play-to-earn space as ripe for scammers,” he added.
FCA and the Fight against Investment Scams
Between May 2021 and April 2022, the UK Financial Conduct Authority (FCA) added 1,966 possible scams to its consumer warning list.
The financial market watchdog said this figure was over a third greater than the number it raised the alarm on in 2021.
The FCA said this action forms parts of its data strategy which was first published in 2013, reworked in January 2020, and updatedin 2022 to “become a more innovative, assertive and adaptive regulator.”
The data strategy, FCA explained, is targeted at improving its use of data to identify and prevent harm faster.
Furthermore, the data strategy is a part of the FCA’s broader Our Strategy 2022-2025.
This all-encompassing strategy aims to reduce and prevent serious harm, set and test higher standards, and promote competition and positive change.
Fighting Scams with Data: How’s the FCA Doing?
The FCA in an update to its data strategy explained that it has created data science units across various offices in its establishment.
These units, it said, work closely with experts in the financial services sector to analyze risks, triage cases and automate processes to detect harm more quickly and protect consumers.
The market supervisor also said it is employing analytical tools and new sources of data to identify high-risk financial adverts.
Last year, the regulator flagged 564 high-risk financial adverts which were either amended or withdrawn. The FCA said this doubled the number it raised the alarm on in 2020.
Furthermore, the independent authority said it has been using web scraping to identify potential scams.
The FCA explained, “We are scanning an average of 100,000 websites created every day to identify newly registered domains that show the characteristics that could be used for scams or fraud.
“Where we identify a fraudulent or illegal website, we publish a warning to consumers and write to the website’s registrar to request it [to be] taken down.”
Among other things, the FCA said it has continued to maintain its collaboration with the Bank of England to improve the quality of the data it collects.
But, are all these enough? Is the FCA doing enough to significantly stem the tide of investment scams in the United Kingdom?
Kunal Sawhney, the CEO of Kalkine Group, an independent equities research form, told Finance Magnates that the regulator “appears to have improved its ability to deal with scams as they arise.”
“Notably, by examining approximately 100,000 websites established every day to find those that seem to be scams, the FCA is utilizing data to combat online fraud more quickly,” Sawhney said.
He added, “In April, the FCA instructed Meta and Twitter to take measures to stop fraud assaults on social media platforms, which have risen in recent months.”
On top of that, Sawhney noted that the embracing tech-driven solution is strengthening the FCA.
“Apart from monitoring websites, implementing a sanctions-screening tool to help the monitoring entities or people who have been sanctioned is one of the FCA's other technological efforts,” he explained.
However, the CEO of the Kalkine Group noted that FCA’s ability to utilize its investigative powers to only look into regulated businesses or offences is a major weakness.
“The Financial Services and Markets Acts 2000 (FSMA) does not grant the FCA any legislative authority over fraud, and any accusations of fraud that are brought are the result of private prosecutions that fall beyond the FCA's statutory purview,” the CEO said.
Speaking at the City & Financial Global-FCA Investigations & Enforcement Summit in 2021, Mark Steward, FCA’s Executive Director of Enforcement and Market Oversight, noted that the regulator had doubled down on its proactive monitoring of the internet with “a dragnet approach.”
Steward noted that the regulator’s goal is to capture suspicious advertising on the same day or 24 hours after it first appears.
However, the executive admitted the limit of the FCA in terms of fighting investment scams.
According to him, the FCA can only prosecute fraud as a private prosecutor.
The Executive Director pointed out that the FSMA, which dictates the FCA’s powers and remit, does not invest the regulator with any general power or authority to prosecute fraud.
Steward explained: “The FCA’s investigation powers can only be used to investigate regulated firms or those offences prescribed in Section 168 of the 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.”
Furthermore, Steward pointed out the limitation of the authority’s enabling legislation in terms of overseeing the internet.
He explained: “The internet and social media have largely been unregulated. While Section 21 of the Financial Services and Markets Act 2000 prohibits the communication of invitations or inducements to engage in investment activity by persons other than those issued or approved by FCA authorized firms, there is an exemption for electronic communications in which the person is merely a conduit for content generated by another person.”
Way Out
The regulatory limit of the FCA’s power in terms of prosecuting fraud is probably due to the existence of other authorities charged with fighting fraud.
For example, there is the National Crime Agency, the national law enforcement agency in the UK. There is also Action Fraud, the UK's national reporting centre for fraud and cybercrime.
However, if the FCA must truly fight investment scams, in particular, it will need more regulatory backing. This will help to put the scourge of investment scams in the country in check.
Also, Sawhney believes that the FCA must foster innovation to prepare for the future by using data analytics to regulate at scale.
“The FCA should speed up the development of a digital unified intelligence environment (DUIE) which could improve its ability to foresee harm and safeguard customers,” he explained.
Across the United Kingdom, various forms of financial scams are rampant. In fact, according to UK Finance’s 2021 Annual Fraud Report, over £1.3bn was stolen by fraudsters last year.
Of the stolen amount, unauthorized financial fraud losses through payment cards, remote banking and check totaled £730.4 million in 2021.
Luckily, banks and card companies were able to fence off £1.4 billion in unauthorized fraud.
Regardless, UK Finance, which represents about 300 firms scattered across the country, recorded 195,996 incidents of authorized push payment (APP) scams.
APP is a type of scam where victims of fraud are deceived into making a payment to an account controlled by a con artist.
Victims of these types of scams lost grossly £583.2 million in 2021, according to the fraud report.
In fact, UK Finance in the report disclosed that APP fraud rose by 27% in 2021 as more people worked from home following the pandemic.
Additionally, UK Finance categorizes authorized push payment scams into two broad categories: malicious payee and malicious redirection scams.
Malicious payee scams include purchase, investment, romance and advance-fee scams.
On the other hand, malicious redirection scams include invoice, mandate, CEO fraud and impersonation scams.
This means that an investment scam is a type of push payment scam.
Soaring Investment Scams in the UK
According to UK Finance, victims lost £171.7 million in 2021 to investment scams.
Investment scams happen when a criminal convinces their victim to move their money to a fictitious fund or to pay for a fake investment. They achieve this by promising a very high return.
“These scams include investment in items such as gold, property, carbon credits, cryptocurrencies, land banks and wine,” UK Finance explained.
Also, according to the professional body, although investment scams accounted for only 6% of the total number of authorized push payment scam cases in the UK in 2021, they accounted for the largest proportion (29%) of losses from all eight APP scam types.
This is due to their nature, the level of sophistication of the criminals involved and the higher sums involved.
Moreover, UK Finance’s data shows that losses from investment scams skyrocketed 57% in 2021. Similarly, the total number of cases of investment scams surged 48% to 12,074 cases,
However, the data shows that the value of funds returned to investors jumped 86% from £40.2 million to £74.6 million.
Vince Howard, the Marketing Director of Opis Group Limited, a British blockchain technology company, told Finance Magnates that a lack of complete oversight from the government on the emerging financial ecosystem means there will be little impact on efforts to stop scammers.
“Cryptocurrency and blockchain technology are relatively new, and given that, scams are happening all too often, and the UK is no exception,” Howard said.
“The crypto winter has led to an increase in this trend, with the play-to-earn space as ripe for scammers,” he added.
FCA and the Fight against Investment Scams
Between May 2021 and April 2022, the UK Financial Conduct Authority (FCA) added 1,966 possible scams to its consumer warning list.
The financial market watchdog said this figure was over a third greater than the number it raised the alarm on in 2021.
The FCA said this action forms parts of its data strategy which was first published in 2013, reworked in January 2020, and updatedin 2022 to “become a more innovative, assertive and adaptive regulator.”
The data strategy, FCA explained, is targeted at improving its use of data to identify and prevent harm faster.
Furthermore, the data strategy is a part of the FCA’s broader Our Strategy 2022-2025.
This all-encompassing strategy aims to reduce and prevent serious harm, set and test higher standards, and promote competition and positive change.
Fighting Scams with Data: How’s the FCA Doing?
The FCA in an update to its data strategy explained that it has created data science units across various offices in its establishment.
These units, it said, work closely with experts in the financial services sector to analyze risks, triage cases and automate processes to detect harm more quickly and protect consumers.
The market supervisor also said it is employing analytical tools and new sources of data to identify high-risk financial adverts.
Last year, the regulator flagged 564 high-risk financial adverts which were either amended or withdrawn. The FCA said this doubled the number it raised the alarm on in 2020.
Furthermore, the independent authority said it has been using web scraping to identify potential scams.
The FCA explained, “We are scanning an average of 100,000 websites created every day to identify newly registered domains that show the characteristics that could be used for scams or fraud.
“Where we identify a fraudulent or illegal website, we publish a warning to consumers and write to the website’s registrar to request it [to be] taken down.”
Among other things, the FCA said it has continued to maintain its collaboration with the Bank of England to improve the quality of the data it collects.
But, are all these enough? Is the FCA doing enough to significantly stem the tide of investment scams in the United Kingdom?
Kunal Sawhney, the CEO of Kalkine Group, an independent equities research form, told Finance Magnates that the regulator “appears to have improved its ability to deal with scams as they arise.”
“Notably, by examining approximately 100,000 websites established every day to find those that seem to be scams, the FCA is utilizing data to combat online fraud more quickly,” Sawhney said.
He added, “In April, the FCA instructed Meta and Twitter to take measures to stop fraud assaults on social media platforms, which have risen in recent months.”
On top of that, Sawhney noted that the embracing tech-driven solution is strengthening the FCA.
“Apart from monitoring websites, implementing a sanctions-screening tool to help the monitoring entities or people who have been sanctioned is one of the FCA's other technological efforts,” he explained.
However, the CEO of the Kalkine Group noted that FCA’s ability to utilize its investigative powers to only look into regulated businesses or offences is a major weakness.
“The Financial Services and Markets Acts 2000 (FSMA) does not grant the FCA any legislative authority over fraud, and any accusations of fraud that are brought are the result of private prosecutions that fall beyond the FCA's statutory purview,” the CEO said.
Speaking at the City & Financial Global-FCA Investigations & Enforcement Summit in 2021, Mark Steward, FCA’s Executive Director of Enforcement and Market Oversight, noted that the regulator had doubled down on its proactive monitoring of the internet with “a dragnet approach.”
Steward noted that the regulator’s goal is to capture suspicious advertising on the same day or 24 hours after it first appears.
However, the executive admitted the limit of the FCA in terms of fighting investment scams.
According to him, the FCA can only prosecute fraud as a private prosecutor.
The Executive Director pointed out that the FSMA, which dictates the FCA’s powers and remit, does not invest the regulator with any general power or authority to prosecute fraud.
Steward explained: “The FCA’s investigation powers can only be used to investigate regulated firms or those offences prescribed in Section 168 of the 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.”
Furthermore, Steward pointed out the limitation of the authority’s enabling legislation in terms of overseeing the internet.
He explained: “The internet and social media have largely been unregulated. While Section 21 of the Financial Services and Markets Act 2000 prohibits the communication of invitations or inducements to engage in investment activity by persons other than those issued or approved by FCA authorized firms, there is an exemption for electronic communications in which the person is merely a conduit for content generated by another person.”
Way Out
The regulatory limit of the FCA’s power in terms of prosecuting fraud is probably due to the existence of other authorities charged with fighting fraud.
For example, there is the National Crime Agency, the national law enforcement agency in the UK. There is also Action Fraud, the UK's national reporting centre for fraud and cybercrime.
However, if the FCA must truly fight investment scams, in particular, it will need more regulatory backing. This will help to put the scourge of investment scams in the country in check.
Also, Sawhney believes that the FCA must foster innovation to prepare for the future by using data analytics to regulate at scale.
“The FCA should speed up the development of a digital unified intelligence environment (DUIE) which could improve its ability to foresee harm and safeguard customers,” he explained.