Kerry Nelson: More needs to be done to stop scammers and fraudsters

The scammers and fraudsters are determined not to waste a good crisis to the detriment of everyone else.

Reports suggest their activities have increased during the lockdown, almost as if the last few years have been preparation.

The criminals and fraudsters were able to move to virtual working all too easily - and certainly more swiftly than some in the regulated industry. Of course, as regulated entities, whether small adviser firms or big life offices and platforms, we have rules to abide by, processes to follow, and clients and customers to care about. That is not a major concern for the shysters.

We should also welcome the fact that many politicians and regulators are alive to the issue and even some high street banks have devoted a portion of their significant advertising budgets to the cause as well.

We have seen information campaigns from Action Fraud and from financial regulators. Advisers also have a role in educating their clients and to spread the message to the wider public, but information does have its limits. 

Increasingly, our view is that it is isn't enough for the FCA to express its concern. And it's not enough for the regulator, and indeed advisers, to try and spread the word.

Promisingly, we know the FCA has become more alive to the issue with several important speeches in 2019. In September, FCA chair Charles Randell discussed skimmers and scammers, pointing out the extraordinary level of financial fraud worth a breath-taking £140bn each year, which is perhaps set to rise due to 2020's unique challenges.

Yet, while welcoming many of the other sentiments and the proper acknowledgement of the problems, we had a few misgivings about the ‘skimmers and scammers' phrasing. It could be viewed as associating out-and-out fraudsters with overcharging advisers related to the solutions offered to clients post-pension transfers.

Poor advice practice should not be dismissed nor excused, but we are not sure it should be categorised alongside behaviour that edges into fraud and criminality, though some advisers and ‘advisers' can be involved in that as well.

Categorising

Yet that brings us to our next point. Regulators, policymakers, providers and advisers need to think carefully about how we are categorising various kinds of misbehaviour.

It might help advisers and other financial services professionals understand where FCA responsibilities come to an end and something like the Serious Fraud Office or National Crime Agency takes over. We do not have a fixed view on this, but the creation of a suitable framework could significantly improve our understanding of the challenges.

Phone and internet-based fraud is clearly outright criminality, though we would note that these outfits posing as your bank or the HMRC have been getting better at prompting, befriending, warning and threatening - sometimes all in the same call, 

But where does a car park space near an airport promising to pay a monthly ‘income' sit? 

If an unregulated investment is ISA-able or pensionable - and in our view it shouldn't be - does this fall somehow within the definition of an investment?

What if the ‘investment firm' describes itself as a mini-bond provider and is promoted by a phoney comparison site?

We also have views to feed in from our experience of helping some clients and clients' families seek the return of their cash from unregulated property investments. Yet we would distinguish between that and a rather pricey DFM.

We know that the regulators are taking some action. The revelation that Google made £20m from search terms associated with LCF and its marketers came from the FCA, after all.

We know the FCA sounded positive about Facebook's willingness to work with them and that sounded like progress.

The FCA wants the advertising of products risking consumer harm to be taken down more rapidly by the social media platforms. Yet we think it needs more. We are fleshing out our own ideas on this, working towards a white paper to give a perspective from the regulated industry and, especially, advisers. 

We also think the FCA needs to do more. When we see the regulator bring in a significant reform, say the Senior Manager & Certification Regime, for example, it can be informed by research, a review and or a discussion paper, before a consultation paper, consultation and ultimately rule changes.

This is because it must follow certain procedures set down by Parliament due to how significant the decisions can be for regulated businesses. Yet we wonder if we need a regulator to take something like this approach to the scammers.

It might involve variously or in some combination: a call for evidence from the industry and consumers; more data-driven research; a better definition or definitions of the scale of the problem; a categorisation of the various kinds of poor behaviour; and an idea of required changes in approach and maybe even resourcing from the FCA itself.

Then, at some stage down the line, there would be a published strategy. Among other things, that might include a demand that the media platforms must take down the marketing of detrimental products, but that is likely only one of several necessary actions.

So, while we know that regulators are not ignoring the problem, we need more than speeches and informal initiatives.

Kerry Nelson is managing director at Nexus Independent Financial Advisers

In response to Nelson's column the FCA replied: "We welcome all suggestions on how we could improve our work with the industry to tackle fraudsters. Our work is based on research and intelligence and we assess any information we receive swiftly. We take steps to disrupt fraud, especially where the fraudster is pretending to be authorised by the FCA or is purporting to carry on activities that require FCA authorisation. Most frauds and scams operate outside the FCA's regulatory jurisdiction but we publish warnings about scams within the FCA's jurisdiction as soon as we are certain that the information is accurate and will help consumers.

"As well as our warning list, we have proactive initiatives such as our ScamSmart campaign to help educate consumers on how to protect themselves from scams. We are also advertising on Google to warn the public about the risks associated with any investments which offer a high return. The FCA currently does not have the power to direct search engines to stop advertising online scams and frauds nor does any other agency. The FCA is a member of the National Economic Crime Centre and works closely with other agencies to combat fraud, this is why we advise anyone who wishes to report frauds and scams to contact Action Fraud.

"Furthermore, in January, we announced the ban of marketing of high risk investments to retail investors. We used our temporary product intervention powers without consultation because of our significant concerns with the widespread marketing some high risk investments to retail customers, particularly online, despite them being high risk and difficult for most investors to understand."

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