City regulator demands crackdown on financial adverts
By Rob Griffin
08:57, 6 September 2021
The Financial Conduct Authority (FCA) has called for online financial adverts to be regulated as part of a bid to tackle online fraud.
Charles Randell, chair of the FCA and Payment Systems Regulator, believes paid-for advertising needs to be legislated to provide a permanent solution to the problem.
Speaking at the Cambridge International Symposium on Economic Crime, he also questioned whether crypto tokens should be regulated.
“The tide of regulation is turning all over the world,” he said. “Online platforms should expect a future where regulation addresses the significant risks they pose in the same way as other businesses.”
Progress made
Randell said some progress had been made on stopping social media giants from publishing and profiting from fraudulent content.
“Google has committed to stop promoting advertisements for financial products unless an FCA authorised firm has cleared them,” he said.
However, he insists more needs to be done.
“We now need other online platforms – Facebook, Microsoft, Twitter, TikTok – to do the right thing too,” he said. “A permanent and consistent solution requires legislation.”
Two-pronged attack
Randell believes a two-pronged attack is needed to tackle financial scams on the internet: appropriate regulation by online platforms and authorities; and greater consumer awareness.
“Enforcement must be a team effort, involving the National Crime Agency, the Serious Fraud Office, police forces and sectoral regulators like the FCA, coordinating with international partners,” he said. “All these players need to have the right focus and resources.”
Consumer awareness requires online platforms to step up, pointed out Randell.
“They can give advice about scams in the moment when consumers are about to make bad decisions,” he added. “We’ll work with online platforms who want to protect both consumers and their own brands – and we’ll call out those who aren’t playing their part and are destroying the trust of their users.”
Kim Kardashian in focus
Randell also highlighted Kim Kardashian being “paid to ask her 250 million Instagram followers to speculate on crypto tokens” via Ethereum Max tokens.
He suggested this may have been the financial promotion “with the single biggest audience” in history but highlighted a potential problem.
While acknowledging Kardashian disclosed it was an ad, in line with Instagram’s rules, he pointed out that she didn’t have to disclose Ethereum Max – not to be confused with Ethereum – was a speculative digital token created by unknown developers.
“Of course, I can’t say whether this particular token is a scam,” he said. “But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.”
Promotion of coins
Randell pointed out that some influencers promote coins that turn out not to exist.
“There are no assets or real-world cashflows underpinning the price of speculative digital tokens, even the better-known ones like Bitcoin, and many cannot even boast a scarcity value,” he said.
He pointed out that these tokens have only been around for a few years, so there hasn’t been enough time to see what will happen over a full financial cycle.
“We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well,” he added.
Speculative tokens
Randell went on to emphasise that “speculative tokens” were not regulated by the FCA and anyone that buys them needs to be prepared to lose their money.
The potential level of consumer harm from speculative tokens, he pointed out, raised the question of whether they should be brought within FCA regulation.
“It’s difficult for regulators around the world to stand by and watch people, sometimes very vulnerable people, putting their financial futures in jeopardy, based on disinformation and fear of missing out,” he said.
Issues with regulation
However, he questioned whether the FCA regulating speculative digital tokens would lead to people thinking they were “bona fide” investments.
He said: “Will the involvement of the FCA give them a halo effect that raises unrealistic expectations of consumer protection?”