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MPs have recommended sweeping changes to how the UK should tackle financial scams, exposing a fragmented network of regulators and enforcement agencies and a lack of appropriate legislation that has allowed scammers to thrive since the pension freedoms were introduced.
Pension scams – nowadays more often in the form of investment scams – are endemic in the UK, which is fast becoming the world’s fraud capital. Action Fraud recorded more than £30m being lost to criminals between 2017 and August 2020, but this is “a substantial underestimate”, according to the Work and Pensions Committee. The Pension Scams Industry Group puts the figure at £10bn, lost by 40,000 people to pension scams since 2015, when the pension freedoms came into force and allowed anyone to access their pension, regardless of whether they had a secure income.
Current laws and regulations are unfit for the 21st century when it comes to tackling scams, a new report on pension freedoms – published by the Work and Pensions Committee on Sunday – has found, proposing a raft of measures to tackle the issue. It points out absurd situations, such as the fact that the absence of relevant laws to stop online scams means tech platforms profit from both scammers and those seeking to stop them as they get paid for adverts by both.
The Pension Schemes Act 2021 will improve scams prevention by restricting people’s statutory right to transfer where there are signs of a pension scam, an amendment suggested by committee chair Stephen Timms after lobbying by the Pension Scams Industry Group. MPs are now also calling for the DWP to publish a review within 18 months of the policy being operational, to allow any necessary legislative changes to be made this parliament.
The new report follows an inquiry that took evidence from industry, regulators and scam victims. It proposes significant changes – such as including financial harm in the upcoming online safety bill, putting the multi-agency Project Bloom on a statutory footing, a costed plan by the Financial Conduct Authority on how it plans to “raise its game in tackling scams”, and a review into the recourse available to victims where a regulator’s actions - for example registering a scheme - have lent legitimacy to scams, among other things.
Regulators should be held accountable, MPs say
MPs seem unimpressed by agencies from Action Fraud and the Financial Conduct Authority to HM Revenue & Customs. “The FCA told us that there have been a very large number of prosecutions involving scams and unauthorised business. We do not agree with this assessment,” the committee notes.
“Its own figures—revealed only through Freedom of Information requests—show that there were just 25 convictions. We have heard numerous criticisms that the FCA is not effective in stopping scams, punishing scammers or retrieving scam proceeds. There is a compelling case for a much more ambitious approach,” it adds.
Action Fraud, meanwhile, must do more to improve its profile and reputation, the report notes, but acknowledges that some of its previous failings are being addressed. “While representatives of Action Fraud were able to speak positively about improvements made to the service since 2019, the investigation, a failure to manage victims’ expectations and a lack of action on cases has left Action Fraud with a tattered reputation. The City of London Police should make annual reports to Parliament on efforts to repair it,” the committee says.
It did not spare the Pensions Regulator and HMRC, both of which, victims said, had given scams a strong aura of legitimacy by registering the fraudulent schemes. The report states that “regulators exist to protect savers and not enable scammers. Where a regulator has failed in this fundamental duty they should be held accountable.” It therefore recommends that government should “review the recourse available to pension scam victims when the actions of a regulator have been beneficial to the scammer.”
Among the other measures it recommends are the inclusion of financial harm in the proposed online safety bill, putting Project Bloom – a multi-agency network to tackle scams – on a statutory footing and managing a national scams database, and requiring that paid-for advertising on online platforms should be covered by the regulatory framework for financial promotions, after the inquiry found that big tech companies allow scammers to use their platforms to advertise scams.
MPs also expressed their dismay at tech companies seemingly taking little interest in whether their income stems from crime or not, saying: “It is immoral that tech firms such as Google are accepting payment to advertise scams, and then further payment from regulators to warn about the scam. It should not require legislative solutions to deter global firms from benefitting from the proceeds of crime, but unfortunately legislation is clearly needed.”
Regulators emphasise need for multi-agency approach
A spokesperson for the FCA - which took some heavy criticism from MPs - said the FCA welcomed the report appreciated the opportunity to give evidence, adding: “We will consider the recommendations made, along with our partner authorities. Tackling scams is a priority for the FCA and we have dedicated considerable resources to it over the last few years in both prevention and pursuit.”
The spokesperson said: “We share responsibility for disrupting these scams with other regulators and law enforcement, and will continue to work with any and all bodies involved in fighting fraud and scams to prevent further harm to consumers.”
The FCA can investigate cases involving fraud if they are within the scope of its investigation powers under the Financial Services and Markets Act. The watchdog has been engaging with social media platforms and search engines to remove scam websites and called for them to engage with its warning list.
Together with TPR, it also runs prevention and awareness campaign ScamSmart, producing produced TV adverts and a website.
Nicola Parish, executive director of frontline regulation at TPR, which holds the chair of Project Bloom, said TPR also welcomed the committee’s report and would examine the recommendations closely.
“Pension scammers wreck lives and as we have shown through Project Bloom, only by taking a coordinated, multi-agency approach to education, prevention and enforcement, can we beat pension scammers and protect the retirements of millions of savers,” Parish added.
TPR recently launched a ‘Pledge to Combat Pension Scams’, which asks the pensions industry to help to stop scams and report them, and early on in the pandemic stepped up its warnings about scams, fearing that people would be more vulnerable during the pandemic.
An HMRC spokesperson said it takes pension schemes extremely seriously, and works closely with TPR and the FCA.
“We know how distressing it is for those targeted by these scams and sympathise greatly with those affected," the spokesperson said, adding: “Parliament changed legislation in 2014 to introduce more stringent checks at registration including fit and proper checks on the scheme administrator to deter the registration of schemes. This enabled HMRC to de-register approximately 700 pension schemes."
HMRC does not carry out due diligence on pension transfers, as this responsibility lies with transferring schemes.
It is set to rejoin the Strategy Group of Project Bloom, being already a member of its Communications Group. It is no longer a full partner in Project Bloom citing taxpayer confidentiality.
Campaigners urge industry to share intelligence and get behind proposals
The Pensions Scams Industry Group responded positively to the committee’s report. Chair Margaret Snowdon said: “We are encouraged they have recommended many of the changes we proposed, including our definition of a pension scam, the incorporation of our red flags into regulations and our call for better reporting of scams and suspicions.”
She said it was important the inquiry has called out “the questionable approach of HMRC to tax victims and proposing a targeted solution to automatic tax charges for those pension liberation victims who have lost rather than gained from the transfer”. Scam victims face a 55% tax charge for unauthorised access to their pension if they were below minimum pension age at the time of the transfer.
Snowdon also welcomed the committee’s call for ringfenced funding and resources for Project Bloom, and a proposal that the group should be renamed the Pension Scams Centre. “We really must share intelligence between regulators, enforcement and the industry if we are to stop scams... with hard financing and central commitment, much more can be done,” she said.
Campaign group the Transparency Task Force, which has previously highlighted the issue of pension scams, expressed its gratitude for the report. Founder Andy Agathangelou said that in June last year, the group had lobbied the committee to open an inquiry into pension scams because of the huge consumer detriment taking place.
The proposals could get further traction in Westminster through an all-party parliamentary group created last year, he added. "I am hopeful that the members of the APPG on Pension Scams, for which the Transparency Task Force is the Secretariat, will be getting behind the proposals too,” he said, urging the industry to get behind the initiatives that have been proposed.
The Association of Member Nominated Trustees hailed the report for its analysis and action calls. Its co-chair David Weeks argued that good member-nominated trustees would help to prevent scams because “they are close to the individual members and can have good general commercial savvy compared with many so-called specialist 'professional’ trustees”.
Weeks added that a spotlight should also be shone on the independent adviser industry to examine the quality of individual advice given to savers.
What, if any, action do you expect will be taken to address the scams issue in the wake of this report?