Internet giant Google has long been criticised over its failure to police online adverts that promote investment scams.
But changes planned by the Financial Conduct Authority (FCA) and HM Treasury could make Google and other providers legally liable for allowing fraudulent ads to appear on their sites.
In its Regulatory Perimeter Report 2019/20, the watchdog said that online promotion has become more and more relevant and prominent and it increasingly exposes consumers to harm.
In December 2019, International Adviser revealed that the FCA was working with Google to develop technology that would check whether promotions appearing on the search engine came from regulated and authorised firms.
But the fight against fraudulent online advertisements is coming at a high price for the regulator, literally, as it is forced to pay for its own space on Google to fight scams.
During the first quarter of 2020, the FCA forked out £90,000 ($115,774, €98,123) just to pay for online ad space to counter-fight fraudulent marketing.
Other regulatory moves include the temporary marketing ban on speculative mini-bonds and security products to retail investors – high net worth and sophisticated investors are, however, excluded – which is set to become permanent.
Exposure to risk and harm
FCA chairman Charles Randall criticised Google during a speech in June 2020, saying that “it is frankly absurd that the FCA is paying hundreds of thousands of pounds to Google to warn consumers against investment advertisements from which Google is already receiving millions in revenue”.
In its latest report, the regulator said: “Online platforms, such as search engines and social media platforms, play an increasingly significant role in communicating financial promotions to consumers.
“As a result, consumers are being more readily exposed to adverts, ranging from scams and promotions of high-risk investments to false or misleading adverts – falling either side of the regulatory perimeter – which, directly or indirectly, lead consumers onto paths resulting in harm.
“As the digital world continues to develop, the potential harms to consumers change in both nature and severity.”
This recently prompted the watchdog to unveil a consultation on how to improve the consumer investment market.
The work the FCA is currently doing with the Treasury aims to make platforms liable and give the regulator powers to oversee them.
It added: “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; that would mean that an online publisher would have to ensure that any financial promotion which they communicate has first been approved by an authorised person or otherwise falls within the scope of an exemption in the Financial Promotions Order.
“We are currently considering with the Treasury the application of the financial promotions regime to these platform operators and whether we need any new powers over them. This work is relevant not just to the promotion of high-risk investments but to our work to address online harms – including scams – more generally.
“We believe there is a strong case to include fraud within the Online Harms legislation, given the FCA’s limited power to take down advertising by those seeking to scam people via the internet. Without this change in the law, our efforts in this area will not achieve the results that many of our stakeholders expect.
“For example, we are seeing a large number of adverts online that we think are not appropriate, such as search engine results. If we want to have them taken down, we have to convince the online company that the adverts are illegal on a case-by- case basis.
“In practice, this takes time and can have limited effect as online adverts can re-appear, in a slightly different form, soon after the original advert is removed.”