Fundamentally speaking, business and commerce is based on trust.
Consumers trust that the business they are dealing with will provide the goods or services they expect, and trust that they have legal protections and a right to recourse if the business does not deliver as promised.
This is particularly true of the financial services sector. Historically, the adage ‘my word is my bond’ has been a guiding principle for the sector, supported by robust legal protections alongside accessible dispute resolution mechanisms for consumers in the event of a breakdown in the relationship of trust.
It is also the case across most other sectors, including in ‘traditional’ forms of advertising. If you see an advertisement on television or in a newspaper, you trust that both the company paying for the advert and hosting the advert have considered your best interests and would not promote something that is harmful to your financial or emotional wellbeing.
If a business breaches this trust and promotes an advert that is harmful, you expect to be able to complain to a regulator or ombudsman and seek recourse from the business for violating the trust that you placed in them.
But when it comes to the promotion of adverts online it is a different story.
If you see an advert on a search engine or on a social media site, there are few rules governing what it can and cannot show, and few requirements on who can actually purchase the advert in the first place. It is worryingly easy for anyone to promote anything online with few checks and balances to stop fraudulent content from appearing.
But this is largely unknown to consumers, who still trust that what they see online is genuine. Few consider the risk that the advert they are seeing or the business they are dealing with are products of fiction, not fact. Research from Which? found that people only have partial awareness of the breadth, range and sophistication of scams found online, and that people have an overconfidence in their ability to recognise scam content.
As a result, we have seen scam activity proliferating on online channels, notably scams that promote fake investments, often using an advert featuring an impersonation of a legitimate financial services firm or known personality from the business or finance world. Action Fraud reports that £78m was lost to consumers to this particular type of fraud in 2020, with the average loss in each individual case above £45,000.
These are life changing amounts of money, often lost forever, with no chance of recovery or legal recourse. There is no regulator to complain to, and in fact the only thing the FCA can do is to advertise themselves, warning consumers of the dangers of bogus investment opportunities promoted through search engines. Search engines are in effect having their cake and eating it too by taking money to host adverts from both the regulator and the scammers themselves.
Government action is vital. Search engines and social media platforms must be given the legal responsibility for preventing fraudulent advertisements from appearing online.
Fortunately, the government has the ideal opportunity to do just that with its Online Safety Bill, which is expected to be included in the Queen’s Speech in May and introduced to parliament later on this year.
However, the government has ruled out including scams in this particular piece of legislation, and instead have favoured tackling fraudulent online advertising in another government initiative called the ‘Online Advertising Programme’.
While this is a positive step forward, it will take a long time and maybe even three years for any legislation to be introduced to protect consumers. With each day that passes, almost £214,000 is lost by savers in the UK to impersonation fraudsters. Not only is this devastating for savers, but the money generated by these scams may be used to facilitate further crimes.
The government must not waste their opportunity, which is why we have written to the prime minister and the minister for online harms to make the case for including scams within scope of the Online Safety Bill, a call which has been echoed by the Investment Association, Pimfa, the Association of British Insurers, and many other industry voices.
It is time for consumers to be protected from scams when they search for investments online, and for this we need swift and decisive action from the government to make the regulation of the internet fit for the 21st century.
This article first appeared in Money Marketing on 15 April 2021