Financial Conduct Authority (FCA) officials have said it will take legal action against social media companies who promote adverts containing online fraud.
Current rules, as dictated in section 21 of the Financial Services and Markets Act, prohibit the “communication of invitations or inducements to engage in investment activity by persons other than those issued by FCA authorised firms”.
Its warning comes as the watchdog announced it had issued 100% more warnings for online adverts promoting scams and fraud in 2020 compared to 2019, going from more than 600 to more than 1,200.
Giving evidence on economic crime to the treasury select committee, the FCA’s director of enforcement Mark Steward added: “The increase in warnings is partially because we changed the way we are detecting these things, in that we are more sensitive; nonetheless, it is a really dramatic increase. There are two main reasons why.
“We are spending more time online during the lockdown, which is noticeable to scammers and fraudsters, who are using that opportunity and exploiting reasonably loose controls around entry into the internet through social media. Social media does not have strong or robust means of detecting these things at the gateway, so it has allowed volume ads to be processed by social media, which are appearing in our searches on a daily basis.”
In order to bolster mechanisms to oblige online companies to tackle fraud on their platforms, the government’s proposed Online Safety Bill requires search engines and social media firms to do a level of due diligence on advertisers that use their platforms. Steward says its inclusion, which wasn’t in the first draft of the bill, is “very welcome”.
He added: “It should be clearly included; otherwise, there is no mechanism for social media to be legally obligated to do some very basic things that do not happen now, such as ensuring that the person who is placing the ad is someone they know, they know where the person is, and they know that the address and contact details are correct, or, where the person is advertising a financial investment, that the firm is properly authorised by the FCA to do so. At the moment, those checks are not being made, and there is no legal obligation either.”
Additionally, Stewart says the FCA is “engaging with all social media companies and making it very clear what we expect from them” in order to reduce “the number of scams we find on their sites”.
He added: “We have good engagement from the social media companies that we have been dealing with. In many respects, the problem we have described is one that is shocking for them as well. The challenge is whether they are really able to come up with a way of tackling this problem that is also consistent with their current business models.
“In many ways, consumers and advertisers having ready access to what is on the internet, being able to find ads that are tailored to their needs, and being able to see YouTube programmes, Twitter feeds or whatever it might be that answers their desire or demand, means that the gateways are naturally very low.
“They function best when those gateways are open and can allow volume through. What we are requiring them to think about is how that can be interrupted by some kind of programme that identifies the very things that are going to cause damage to consumers.”