Online ad prevention 'much more preferable than cure', says FCA

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Online ad prevention 'much more preferable than cure', says FCA

The Financial Conduct Authority has said social media firms should be forced to stop financial adverts by implementing “systems and controls”.

At the joint committee hearing on the draft Online Safety Bill yesterday (October 18), the FCA, alongside other regulators, was quizzed on its views about the government refusing to include paid for adverts in the online safety bill. 

The government’s proposed legislation about online harms covers some financial harms but paid-for advertising, one of the main sources of online investment scams, is still not covered.

Mark Steward, FCA executive director of enforcement and market oversight, said under the Financial Services and Markets Act, unless an individual is FCA registered, it cannot run ads in the UK targeting UK citizens with financial products.

However, he explained that despite this, it does not stop advertisers doing it, nor does it stop social media firms from permitting that to happen. 

“We are very strong supporters of an approach that would obligate social media firms to create systems and controls, because we know from our financial services experience how valuable regulated systems and controls can be in preventing harm. 

“We think this is an area where prevention is much more preferable than cure, because the cure unfortunately is very difficult, expensive and frustrating because it leads to perpetrators who are out of their reach overseas.”

Steward said the FCA still wants a crackdown on paid for advertisements included in the bill, despite the government's insistence there would be a consultation on online advertising regulation later in the year.

He said: “The way in which the bill talks about the development of codes appears to be a way in which the regulators could identify areas where social media firms and platforms need to design their own systems and controls to avoid harm from occurring.

“Those systems and controls might include an obligation to ensure that anyone that is advertising a financial promotion is authorised by the FCA or it might involve having an obligation to do some checks at the gateway where you have information that might be inconsistent or contradictory.

"[The] obligation has to sit somewhere in the system because at the moment it's unfiltered, at the moment the only filter for the industrialised production line for these ads is whether they are paying the fee to the social media company and that doesn’t appear t be the right filter given the amount of harm this is causing.”

In June, Google made a move to clamp down on financial fraud appearing on its platforms by forcing all financial services advertisers to demonstrate they are authorised by the FCA.

But last month, the search engine hit out at suggestions fraud committed through paid-for advertisements should be included in the much-debated online safety bill, saying the bill was not “targeted” enough to “efficiently tackle” these types of online scams if they were included.

'Whack-a-mole problem'

Throughout the committee hearing, Steward emphasised that the regulator has seen an increase in these adverts over the last 18 months.

“We detect them, we warn about them and we speak to social media about them as well and sometimes we are successful in getting these sites taken down,” he said. 

“But it is a bit like whack-a-mole because it's apparent that what lies behind this phenomenon is something that is well organised, it's industrialised, and it has created a means of getting the attention of online consumers at volume in a very cheap and efficient way, and the pursuit of the perpetrators which often leads us into places overseas, is not the answer.”

Instead, he added, the answer is increased prevention to stop this systemically happening. 

“We are very strong supporters of the bill, strong supporters of an extension to have paid for advertising as well, because the problem is most manifest in the paid for space, so it doesn't make sense for the bill not to deal with the very hard problem which is the paid for advertising space, and it doesn't make sense for people who are not paying for advertising to be regulated by this bill and for scammers to be able to pay for advertising and escape its clutches.”

Michael Grenfell, executive director for enforcement at the Competition and Markets Authority agreed.

He said: “If one can go after the actual wrong jurors, that's great. But there are problems and one is the problem that some of them are outside the jurisdiction, but the other is the one Mark called the “whack-a-mole” problem.

“We did that with fake online reviews. We went after individual perpetrators, but then others pop up. The real thing has to be that the platform's themselves take responsibility, and they're capable of it. They have systems.”

Grenfell said the CMA took enforcement against fake reviews on these platforms and said social media giant Facebook agreed that it would put in place an algorithm that detected these and stopped it. 

“These platforms have the capability to devise methods for controlling it, and it is, as Mark said, the most efficient and effective way to give them the responsibility.”

This latest push to include paid for advertising comes as the FCA again said online financial adverts should be regulated, alongside a warning against the need to regulate the promotion of crypto tokens. 

In August, the FCA chief executive officer Nikhil Rathi, reiterated in a podcast that the regulator was keen for ads to be included in the Online Safety bill, which is currently going through parliament, in line with calls from the industry.

sonia.rach@ft.com

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