With their take on the occasional ‘Dear CEO’ letter that comes out of the FCA, starting this month, the good people at The Timebank are producing a series of ‘Dear Regulator’ letters for us at IFA Magazine. The letters feature some of the thoughts and ideas on the direction of travel which they think the industry might like to see the regulator heading in. We kick off this month with a ‘letter’ from Timebank’s Owner and MD, Damian Davies, on the subject of scams.
Dear Regulator
Re: SCAMS & YOUR POWERS
Being tightly regulated is a great way for our clients to understand that everything we do as a profession is going to be in their best interest.
Above this, we are aware that one of the most important elements in our profession is trust.
There are any number of reasons why an adviser might get engaged by a client; they might be referred by a friend or another trusted professional. The client might even just pass their office regularly and one day decide they need to take action.
Either way, the first meeting really is a chance to see if there is any form of chemistry.
If the client and the adviser get on, they’ll start working together. At this point, they like each other, but they can’t trust each other.
It is only through delivering on promises over a period of time that trust is developed between the adviser and the client.
A ‘honey pot’ for scammers
Sadly, due to the nature of the profession we operate in, it is a honey pot for scammers. These scammers are damaging the years of trust that you as regulator and us as advisers have accumulated with the public.
The public might think we could all be potential scammers and that you don’t have authority to do anything about it.
Criminal scammers these days often focus on Authorised Push Payment (APP) fraud. This is where criminals socially engineer their victims. These tactics include phone calls, text messages and emails, as well as fake websites and social media posts designed to trick people into handing over personal details and passwords. This information is then used to target victims and convince them to either authorise payments that they are unaware of or encourage them to make the payment themselves.
According to UK finance’s 2023 half year fraud update almost a quarter of all APP fraud are investment scams, where people are persuaded to transfer or ‘invest’ often substantial sums of money with tales of fictitious dividend payments or high returns, only to lose their investments. That’s around £120 million a year.
The speech delivered by Mark Steward, FCA’s Executive Director of Enforcement and Market Oversight, in May 2021 showed how quickly and easily these scams can arise and spread.
In his speech, Mr Steward highlighted the best2invest.co.uk ‘scam’ that was designed by a journalist to test the speed and ease of dissemination of investment scams.
The journalist placed an advert for a high return, fixed-rate bond on social media and paid £100 for advertising. In less than a week, the advert had been viewed 3,500 times and clicked on by about half of those people.
Seeking solutions
We appreciate you are tackling this with the Warning List and SCAM smart initiative. These are, however, more of a reactive treatment rather than a preventative measure.
The problem that we would like to see addressed is that the regulations you enforce, and we operate in, are only as strong as the ecosystem between us.
Scammers operate outside of your regulations, so you can’t enforce regulations on them.
We would like you to campaign to widen the Financial Services & Markets Act 2000 (FSMA).
Firstly, 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 authorised firms, there is an exemption for electronic communications in which the person is merely a conduit for content generated by another person.
This needs to change to ensure the providers of the mediums that these scammers use (website, social media, email and so on) are invested in the suppression of the scammers.
Secondly, under FSMA your investigative powers can only be used to investigate regulated firms or those offences prescribed in s168, which does not include fraud and you are not provided with any general power or authority to prosecute fraud.
This needs to change to create a powerful body with powers of investigation and prosecution.
A way forward
From this, we can build a powerful collaboration of threat awareness and confidence that prosecution and enforcement action will follow.
A great example of success is the Dedicated Card and Payment Crime Unit (DCPCU), which was established in 2002 as a unique, proactive and fully operational police unit with a national remit. It was formed as a collaboration between UK Finance, the City of London Police and the Metropolitan Police Service. In 2022 a three-year funding stream was secured to enable the unit to build a team to tackle emerging cryptocurrency cyber enabled threats. This new team helped the unit achieve industry savings of over £22 million from January to June alone.
The FCA could use its extended powers to build a similar unit to tackle what is close to £120 Million in investment scams.
The public would be right to imagine that the body that enforces the regulations of financial services also has the power to investigate and prosecute those taking advantage of the trusted relationship between adviser and client to create a scam.
We feel this extension of FSMA will bridge the gap that currently enables scammers to feel confident they are in a safe place.
We look forward to working together to promote good consumer outcomes.
