Written evidence submitted by Personal Investment Management and Financial Advice Association (PIMFA)

We welcome this inquiry into economic crime and in particular we welcome the apparent focus of the Committee’s work on the impact on consumers. It has been a point of some frustration for us that successive governments have associated economic crime as a practice which is perpetrated against large financial institutions rather than individuals. We welcome the scope off the Committee’s inquiry.

The issues we would like to raise with you are threefold:

-          The rise of investment scams and how they are affecting our members;

-          The work currently being undertaken by government to reform Companies House; and

-          Adequately funding fraud prevention.

Investment Scams and ‘mis-buying’

Investment Scams

PIMFA and its membership are increasingly concerned about the prevalence of investment scams in the UK. The Committee rightly highlights concerns around the prevalence of scams as a result of COVID-19, although many of the techniques employed by scammers pre-date the pandemic. In particularly our members are concerned about the prevalence of clone scams, examples of which we have set out below:

-          Investment fraud through social media: where a scammer claims to be an employee or agent of a legitimate firm;

-          Investment fraud through impersonation fraud: where the scammer contacts existing customers or members of the public impersonating genuine firm staff – names of firm staff can be found through social media like LinkedIn or other public sources;

-          Spoof domain names have been found by firms but the hosting company refuses to take them down because the domain is not associated with a website. However, the spoof domains are being used to send fraudulent emails to clients and prospects.  A takedown notice from Action Fraud can resolve the situation with UK hosting companies, but where the spoof domains are created overseas there is currently no jurisdiction for them to enforce takedown; and

-          Fraudsters contacting customers and claiming to be from a public authority (eg the FCA), telling the customer that the firm they are invested in is fraudulent or poorly performing in a bit to scam the customer into transferring their funds to a third party bank account claiming that this way the money will be kept safe.


Extending the scope of Online Harms Legislation


There is currently no legally enforceable system for compelling search engines and social media platform to remove clone scams. More broadly, these platforms have no legal responsibility to ensure that their users are not exposed to content which could result in financial harm to them.


We are aware that the government is due to bring forward legislation related to Online Harms next year when time allows which will enable government to:


-          Establish a new statutory duty of care to make companies take more responsibility for the safety of their users and tackle harm caused by content or activity on their services;

-          Mandate an independent regulator to oversee and enforce compliance with this duty of care;

-          Require annual transparency reports from companies in scope, outlining the prevalence of harmful content on their platforms and what counter measures they are taking to address these.


At present, the government is resolved to explicitly exclude financial harms and scams from this Bill to both consumers as well as excluding all harms to organisations. Doing so is, in our view, a mistake. Whilst we support the premise of the Bill and the Online Harms which it aims to address, excluding financial services either underestimates or ignores the severity of the problems for UK Consumers. We take the view that by including these harms, search engines and social media platforms will be given a legal responsibility to prevent these scams appearing on their sites and if it does, require them to act quickly. Doing so will improve consumer outcomes and in the long run, consumer confidence. We believe that this is something which the Committee should press government on and will find widespread industry support for across financial services.




Whilst not strictly within the scope of this inquiry we would also like to draw the Committee’s attention to the propensity of clients to mis-buy unregulated products. PIMFA remains extremely concerned that in an environment which is dominated by low interest rates, consumers will increasingly be drawn towards high risk investments which offer returns which are far beyond the realms of possibility. Recent research conducted by the FCA showed that consumers might only start to recognize that a financial promotion or product is too good to be true when the promised rate of return is around 30%.


In the first instance, we believe that more should be done to stop the promotion of unregulated investments to consumers. To this end, HM Treasury recently consulted on the authorization of these promotions. In our response we argued that the approval of unauthorized financial promotions should be a regulated activity. We see no reason why that should not be the case and would urge to ensure that government adopts this recommendation.


Secondly, we believe that there is scope to look more broadly at the regulatory perimeter. In our view, consumers should reasonably expect that a product which they are able to buy as a retail consumer, or is contained within a self-invested personal pension for example, would be regulated. However, this is not always the case. More broadly, in some cases in the event of this product failing, it is a point of frustration among our membership that whilst the product has not been regulated it is legally a compensatable failure under the Financial Services Compensation Scheme. We would suggest that if a product is eligible for compensation it ought to fall under the regulatory perimeter. We would urge you to work with colleagues to explore how you can expand the perimeter to better empower the Regulator.


We understand that expanding the landscape that the Regulator has jurisdiction over will inevitably have an impact on its resources. However we would also point to the fact that the cost of funding the compensation scheme is currently about equal to the cost of funding the regulator. We believe that a better, more empowered Regulator would ultimately lead to a long term reduction in compensation costs which represents long term savings for our membership.


Companies House

In relation to reform of Companies House, we are very supportive of the steps the government is considering as set out in the Government response to the consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities. Improving trust in the register, so that firms can have greater confidence that only verified individuals are filing information on the register and that only verified individuals can be a director of, or file on behalf of, a company, would be a substantial benefit in bringing confidence to the business relationships created and would help deter and reduce illicit activity. Linking individuals across roles in different companies will dramatically improve the ability to trace a person’s corporate history. This will have a good effect in preventing phoenixing (repeatedly setting up and closing companies with large debts) as it will be much harder to repeat criminal behaviours. Improvement on the accuracy and usability of the data on the Register would benefit businesses of all sizes as they can take greater assurance on its reliability.

Targeting and preventing fraud

The first part of this note focused on how more could be done from a legislative perspective to prevent consumers being targeted and the victims of investment fraud. We would also argue that consideration needs to be given to whether or not the current authorities tasked with both regulating financial services and pursuing reports of fraud are well resourced enough to do so effectively.

There is a disconnect between reports of Fraud and these actually being pursued by the police. Evidence presented by Quilter in support of the Work and Pension Select Committee’s inquiry into pension scams found that on average only 2 reports a month by ActionFraud were followed up by the relevant authorities. This is primarily a function of the fact that there is a lack of resource allocated to targeting fraud.

We believe that this is something which the government has recognized through the inclusion of fraud within its Economic Crime Plan. However, it is our view that their proposed measures to add more resource in tackling fraud are misguided. As you know, the government currently intends to implement an additional private sector levy specifically for fraud. Fraud is not specific to the regulated sector, but applies to all sectors and industries. Fraud prevention is a government objective that benefits society as a whole and should, in our view, be funded through general taxation, rather than being paid for by a specific private sector. Whilst we strongly believe that more resource should be given to relevant anti-fraud agencies, it should be done in a way which reflects the fact that this benefits all of society and consumers.


December 2020