One of the most unfortunate consequences of the recent cost of living crisis in the UK is that many scammers have arisen to exploit vulnerable clients. These companies are not licensed by the Financial Conduct Authority (FCA), as they should be, providing various financial services – some pretend to be banks, others to be Forex brokers, loan sharks, various crypto companies and so on.
In Q3 of 2022 – the months between July and September of the year, the FCA has analyzed the highest number of complaints about such companies from various sources – over six thousand such signals were analyzed and over 300 warnings were issued regarding the activities of such firms. The regulator has also cracked down hard on the provision of unsavory services from companies it does oversee. That way, it has reviewed over 300 financial promotions and taken steps to make firms amend them.
The discoveries of the regulatory body are quite significant and reveal the incredibly high amount of financial criminals seeking to target UK clients. Here is a thorough breakdown of the actions the FCA took and the most important takeaways:
The FCA receives over 6 000 signals of unlicensed firms
The most concerning discovery from the report published by the FCA is the fact it has reviewed an incredible 6 243 reports of unauthorized behavior. This comes out to around 67 reports covered by the Authority daily. It has found that the unlicensed firms come in many flavors. Particularly concerning was the report of fake investment companies making use of Google, YouTube, Instagram and other online platforms to seek out their victims via promotions of their services.
In the case of the social media platforms, scammers have been able to target their victims by presenting themselves as professional investment firms, or Forex traders for years. These issues are nothing new and highlight the dire need for moderation on the social media platforms and the continuous failure among the companies running them to enact that. More novel is what the FCA discovered they did when it comes to Google. They have taken advantage of clients feeling pressured by the rising inflation and looking up various terms related to the practice of investing – that way, scammers are able to use ads to direct them towards their websites, where dangerous and unregulated products like crypto were being pushed to them.
The regulator states it has also taken action against a company which was found to be offering trading signals to an incredibly large audience – 70 000 clients. The firm was unlicensed and was ordered by the FCA to cease operations. In general, 303 alerts were published in that timeframe, regarding unlicensed firms offering regulated services. A particularly worrisome conclusion the market watchdog drew was that most of these scams were clone firms.
The vast number of UK clone scams
A clone firm is an unlicensed entity that tries to pass itself as an FCA-licensed company. These clones take all kinds of shapes. Some of them imitate UK forex brokers, others claim to be licensed pension funds and so on. These are highly dangerous scams, because they can be incredibly convincing. Sometimes, the only way to actually tell them apart from the licensed entities would be the URL of the website they operate on. Of course, clone firms are nothing new – but there has been a staggering amount of them recently. The FCA notes 20% of the complaints regarding unregulated activity it reviewed were actually found to be these kinds of scams.
The FCA has the power to take down such websites and says it has exercised it in the majority of these complaints. Of course, you need to be extremely vigilant of such schemes as well. Always make sure you are actually dealing with the licensed firm and not one of its clones. The best way to do so is by heading over to the FCA register and searching the licensed entity you wish to do business with. The entries in the register carry information regarding the trading names, websites and addresses of these firms – only deal with ones who match the information there perfectly.
Loan companies account for majority of ads breaching FCA policy
Another important aspect of the regulatory activities of the FCA is making sure that all financial service providers it covers do not mislead their clients via their online advertisements. This is why it has reviewed over 340 signals about misleading ads, and taken action in directly intervening with the firms providing them. This led to over 4 150 ads being amended by 37 authorized entities.
A breakdown of the amount of offending promotions was presented by the regulatory body. It discovered that the largest amount of them was from loan companies – over 45% of them. The second and third major sectors, with over 20% shares of these breaches of FCA policy were retail investment and banking. Pension funds came fourth with under 10%.
CFD, BNPL and e-money firms amending dangerous practices
In the case of licensed companies being found to be breaking the FCA rules, the Authority contacts them directly and demands they either amend or take down the ads they have offered. And, indeed, in most of the cases the firms do comply and modify their advertisements. In its report, the regulator explains how it intervenes with these companies and shares their stories.
The majority of the 4 151 amended ads were ones of loan firms – and these credit brokers were issued letters by the FCA, called the Dear CEO letters, which outlined what would be expected of each of these companies. They changed or removed 3 878 of the offending promotions.
An unnamed CFD provider was found to be distributing a video which was not representative of the loss percentage among their clients. A curious FCA measure requires its licensed Forex and other CFD brokers to give out precise information regarding the amount of their clients who experience losses as a part of their trading activity on the platforms of the firm.
Another example includes a Buy Now Pay Later company failing to disclose the risks that come from its services, instead simply embellishing the possible profits from them. The FCA contacted the firm and its promotions were rectified. That was the case with an e-money company, which was also found to be failing to disclose the differences in protections between the e-money and bank accounts of retail customers. It was also found that it had been misleading clients regarding its exchange rates. The firm contacted over 6 500 of them as a result and clarified the misconceptions to address these issues.
