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The fight against skimmers and scammers

Posted on 29 September 2019

On 4 September 21019, Charles Randell, Chair of the FCA delivered a speech at the Cambridge Economic Crime Symposium where he described the challenges which the FCA and other agencies face in tackling those he described as "skimmers and scammers".

Randell began by expressing the view that financial crime, specifically fraud against individuals, has reached epidemic proportions.  He also made clear that the responsibility for tackling financial crime lies with a number of organisations of which the FCA is only one. However, his speech follows an intense period of criticism of the FCA for its actions in dealing with a number of high profile investment frauds, including London Capital and Finance (LCF)[1]

Randell explained that many financial scams, particularly those on the internet involve products which the FCA does not regulate.  However, even if the FCA had the powers to do so, it could not take on the investigation and prosecution of all investment activity which is fraudulently promoted.

He did however set out some of the measures which the FCA is taking:

  • Whilst he expressly said "I don't express a view on the wisdom of the pension freedom policy as such" – meaning those reforms introduced in 2015 allowing transfers from DC schemes – he noted that the Commons Work & Pensions Committed has asked "challenging questions about the execution of the policy", particularly the speed at which the reforms were introduced.  The FCA continues to catch up; with a ban on cold calling introduced at the beginning of 2019 and a current proposal to ban contingent charging for pension transfer advice. The FCA has also maintained heightened enforcement activity against regulated pension firms and advisors and will continue to focus in this area – although Randell did note that reports of pension scams are now decreasing, with the scammers moving into new areas such as crypto and forex scams.
  • Following LCF and other scandals, the FCA is also increasing activity to disrupt "harmful minibond issuance", although he explained that the issuing of bonds by companies is largely unregulated and there is a limit to what the FCA can do in this space.  Approving financial promotions is not a regulated activity, although only FCA authorised firms may do it.  Nevertheless, we are seeing an increasing focus in this area from the FCA's financial promotions team, and where the FCA takes the view that failures on the part of firms approving financial promotions demonstrate a lack of fitness and propriety, it is likely that bans will result.
  • In the medium to longer term, the FCA is likely to push for changes to legislation.  Measures which Randell suggested might be considered include:
    • increasing restrictions on the sale of high cost, risky and illiquid investments.
    • reducing the "bewildering array of products" that can be presented to the majority of investors.
    • ending tax relief on high risk unregulated investments held in pensions.
    • placing restrictions on innovative finance ISA products – he noted: "people are confused when one part of the state encourages an investment, while another public authority says it's highly risky".
    • making approval of financial promotions a regulated activity requiring specific FCA permission.
    • increasing requirements of internet companies – as a minimum the expectation that they will take down suspected fraudulent content immediately when requested to do so by the authorities and ensuring that their terms and conditions given them the right to do so. Randell noted that in the LCF case, a large proportion – over £20m – of client's payments to the firm were spent on Google advertising.

Whilst the FCA has always taken action at the perimeter of regulation, including against unauthorised firms breaching the general prohibition, it is clear from this speech and other messages from the FCA that the regulator resources devoted to scams will increase. As a consequence, we are likely to see an increase in enforcement cases both against unregulated firms and regulated firms that facilitate investments into unregulated products.

 

[1] Mishcon de Reya LLP is acting for the joint administrators of LCF.

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