FCA dips toes into regulating big tech as online financial harm comes into focus
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The Financial Conduct Authority has fired a warning shot to big tech companies profiting from adverts for risky or fraudulent financial products, saying it will keep an eye on how they comply with financial promotions rules in force since Brexit.
Social media, search engines and other online companies have long escaped the regulatory grip, but UK financial regulators are becoming increasingly aware of the role they play in consumer harm – and making first attempts at curbing this.
Scammers often advertise online, with the platforms they advertise on taking payment for hosting the ad. Getting big tech to take down scam adverts however is often a much lengthier process, and firms frequently profit twice, as regulators and industry need to pay for their own ads to warn about the scams, the Work and Pensions Committee was told in its ongoing pension freedoms inquiry.
FCA under pressure from MPs
The committee recently published a report in which MPs did not mince their words when it came to big tech accepting money from scammers, saying: “It should not require legislative solutions to deter global firms from benefitting from the proceeds of crime, but unfortunately legislation is clearly needed.”
The committee has recommended sweeping changes to better prevent and prosecute for scams, including a costed plan by the FCA on how it plans to “raise its game in tackling scams”. MPs were unimpressed by the FCA’s claims that it had prosecuted a large number of businesses, saying it did not agree with this assessment, after a freedom of information request revealed 25 convictions.
The FCA’s chief executive Nikhil Rathi said on Tuesday that since the UK has left the EU – the transition period ended on 31 December last year – online platforms are no longer exempt from the regime on financial promotions.
“We see no reason why different standards should apply to a search engine or social media compared to a newspaper. If these platforms choose to display and profit from adverts for risky – and in some cases fraudulent – investments, they should also comply with financial promotions rules,” he said, noting that inexperienced investors are more than twice as likely to resort to social media.
"We’re looking at how social media platforms are adapting to these new rules. If needed, we will take action,” he said.
Rathi said the FCA has “called for the government to take action to provide better financial protection for consumers online”, adding: “I reiterate that message today. Ultimately, online search and social media firms need to take greater responsibility for their role in connecting consumers with these investment offers.”
Tentative steps to tighten grip on online promotions
The FCA’s executive director of enforcement and market oversight, Mark Steward, told the Work and Pensions Committee in January that financial harm should be included in the online safety bill to send a signal social media and search engine providers.
“Anything that might recognise that this is a serious enough harm to warrant inclusion in the online harms bill would be a really good message from the government,” he said. “Crime firms should be spottable by social media. If we can spot them, social media can as well. They should not be advertising and searchable on social media.”
Last autumn, the FCA’s Perimeter Report also noted that social media should have a duty to ensure ads comply with rules on financial promotions: “We think that it is important that online platform operators, like Google, bear clear legal liability for the financial promotions they pass on – at least to the same extent as traditional publishers of financial promotions.” It said at the time that it was discussing with the Treasury whether it needed new powers over them to address scams among others.
Are UK financial regulators doing enough to get a handle on big tech over financial promotions?