Google, Facebook and other tech giants need to do more to tackle investment scams promoted online, the chairman of the UK’s financial regulator has said, as he admitted the Financial Conduct Authority “can’t step in to deal with all financial crime”.
Calling for an overhaul of a system that is “not right” as an estimated 5m pension savers are at risk of being scammed out of their life savings, Charles Randell singled out Google for continuing to promote “numerous very doubtful offers high up the search rankings”.
He said that, at a minimum, tech giants should be obliged to take down suspected fraudulent promotions immediately after receiving a request from the authorities.
“Major companies can effectively enable a huge amount of fraud [ . . .] The companies which promote advertisements for scams on the internet and thereby profit from these crimes . . . quite frankly, they don’t always play their part in remedying the harm they create,” Mr Randell said. “I would expect them to use their extraordinary resources to work with law enforcement and regulators to develop algorithms and machine learning tools to identify potentially fraudulent content.”
His comments, made in a speech on Wednesday night, come in the wake of the £236m collapse of London Capital & Finance, which promoted unregulated mini bonds, often to pensioners and first-time investors who now face potentially being wiped out. Some £20m of their money went to pay for LCF promotions on Google, according to Mr Randell.
Facebook, which has just added a new tool for reporting suspected scams, declined to comment. Google did not immediately respond to requests for comment.
The LCF scandal, which has prompted parallel criminal and regulatory probes as well as a statutory investigation into potential mis-steps the FCA itself made, underscored a bewildering landscape where investors are faced with the twin pressures of low interest rates and pension liberalisations. There is also confusion, even among regulators, over what investment products are covered by the UK’s compensation scheme, and when.
Keith Richards, chief executive of the Personal Finance Society, said the authorities “need to signpost to what is regulated as well as giving warnings about criminals”.
“The FCA is now making commitments to police the regulatory perimeter, but in the past this area fell between many stools — the police were responsible for investigating fraud, the Treasury and Department for Work and Pensions were in charge of authorising occupational pension funds from a tax and regulatory perspective and the FCA policed conduct of regulated activity,” he said.
Mr Randell wants the approval of financial promotions made a regulated activity; something the government would need to legislate for.
Meanwhile, fraud in the UK is reaching epidemic levels, with individuals reporting nearly 4m cases and businesses losing £140bn to the crime each year, Mr Randell said. The government earlier this year launched an economic-crime plan in an attempt to dampen the levels of fraud and money-laundering. But chancellor Sajid Javid’s spending review on Wednesday made no explicit mention of tackling economic crime beyond £8m earmarked for Companies House, although he pledged to significantly increase funding for frontline police and justice services.
Mr Randell said lessons needed to be learned from the pension liberalisations, ushered in by George Osborne, the former chancellor, particularly because it was launched within a year of it being announced.
“A very major change of policy like this needs a substantial period of planning and testing so that all the necessary safeguards against skimming and scamming are integrated before it is launched,” Mr Randell said. He added that a current Treasury review into mini bonds and Isas — prompted by LCF’s collapse — needed to ensure scammers did not resurface in other investment areas.
“People are confused when one part of the state encourages an investment, while another public authority says it’s highly risky,” he added.
