Steward said that the FCA is also continuing to exercise its powers to “pursue offenders”. He said the regulator currently has 50 ongoing investigations in relation to unauthorised activity involving 183 suspects. He said many of those cases “have an overseas jurisdictional challenge”, but that the FCA is using its powers “to seek restitutionary outcomes as well as to bring criminal prosecutions where we can”.
Hinesh Shah, a financial crime investigator at Pinsent Masons, said Steward’s comments highlight the “assertive message” the regulator is issuing in relation to the action it expects of regulated firms in tackling investment scams and fraud.
“The FCA will continue to use its powers to pursue fraudsters – despite the significant time and costs involved – but they will also be expecting regulated financial institutions to play their part in the detection and prevention of investment fraud,” Shah said. “The focus on financial crime technology, controls, and processes remains of paramount importance and firms who do not have adequate measures in place should expect to come into the FCA’s firing line.”
David Hamilton, who specialises in financial regulation and enforcement at Pinsent Masons, said that scammers have sought to exploit changes in customer behaviour resulting from the impact of Covid-19.
“The Covid-19 pandemic has seen a dramatic increase in the number of people conducting their financial affairs online; and criminals have evolved their approach to suit, setting up online investment frauds that prey on consumers’ insecurities about their financial wellbeing by promising too-good-to-be-true returns,” Hamilton said.
“The threat that these frauds pose to consumers, especially those whose circumstances make them vulnerable, has been high on the FCA’s agenda for some time. The FCA earlier this year issued finalised guidance for regulated firms on the fair treatment of vulnerable customers, requiring firms to take appropriate steps to protect their customers’ interests, particularly where they have fallen victim to fraud,” he said.
Hamilton added: “Steward’s speech underscores the FCA’s determination to defend consumers, including taking a more proactive approach to monitoring the internet for online scams, notifying consumers and regulated firms of dodgy operators via its warning list, taking enforcement action against regulated firms found to have assisted such operators, and engaging with social media firms in respect of financial promotions publicised on their sites. The FCA is also clearly committed to enforcing relevant regulatory perimeters, with 50 investigations involving unauthorised activity currently in progress.”
However, Hamilton thought it was clear from Steward’s comments that there are limitations to what the FCA can do itself under the existing legislative and regulatory framework to address fraudulent activity.
Hamilton said: “Although the FCA has extensive powers to enforce against false or misleading statements in relation to certain investments, it has no general statutory power or authority to prosecute fraud. Moreover, the FCA can only operate within its various regulatory perimeters and determining what is within or outside those perimeters can indeed be a tortuous analysis.”
“As the FCA has previously indicated, these limitations do not necessarily sit well with the public’s expectation that it will intervene in scams no matter what the underlying investment. The statutory constraints are also thrown into particularly stark relief when, as Steward points out, less than 1% of police resources are currently devoted to fraud. It will be interesting to see whether the evolution in the threat landscape and the government’s renewed attempts to tackle online fraud through the Online Safety Bill will also prompt a review of the FCA’s powers to bring bad actors to book,” he said.
In his speech, Steward highlighted UK legislation relevant to social media companies that support financial promotions. He said 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”. Steward highlighted that an exemption to section 21, which previously derived from EU legislation and applied to electronic communications made from an establishment in a country within the European Economic Area, no longer applies following Brexit. He also said that the FCA is engaging with social media firms on complying with section 21.
Steward welcomed plans for a new Online Safety Bill which the UK government set out earlier this month, which he said would, if passed in its current form, “provide, for the first time, a regulatory framework tackling user generated online scams”. However, he said it remains unclear “whether the proposed bill goes far enough”.