FCA calls for social media giants to be held accountable for fraudsters on their platforms in wake of LCF scandal
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Social media companies should be punished when fraudsters use their platforms to advertise scams as a part of new online harms legislation, according to the Financial Conduct Authority’s (FCA) chief executive.
Nikhil Rathi told MPs today that social media platforms were becoming “one big vector” for fraudsters and that firms like Twitter and Facebook should “take responsibility for the promotions that are put on their websites”.
Rathi appeared in front of Westminster’s Treasury Select Committee to speak about lessons learnt from the 2019 collapse of London Capital & Finance (LCF).
LCF’s collapse left more than 11,000 investors with losses of up to £237m.
An independent report last year said former FCA boss, and now Bank of England governor, Andrew Bailey and the authority’s executive committee were responsible for deficiencies that led to LCF’s collapse.
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Bailey denied culpability last month when in front of the select committee.
Rathi, who took over from Bailey as FCA boss last year, said tighter regulation of social media through the government’s online harms legislation, that aims to increase online safety, would help prevent similar scams from occurring on a large-scale in the future.
“The single thing I think, that is not a panacea but would help, is for investment to be included in the online harms bill to enable us to work much more enthusiastically and rapidly with the large search firms, social media firms [and] for them to take responsibility also for the promotion that are put on their websites,” he said.
“We’ve made that recommendation to the government very clearly.”
FCA chairman Charles Randell said the body was “pushing water uphill to try to address that problem”.
Rathi also told MPs that the FCA needed to be freed up to name potential fraudsters, without being sued for defamation.
“We would like greater protection for naming firms where we have concern,” he said.
“We’ve gone quite far now with our warning list, where we go out and name firms with problems but…there’s always the risk we can get pursued in court for sharing concerns before we have been able to fully investigate.
“There is this issue around investigation and naming that is important as well.”
LCF sold risky and unregulated mini-bonds offering big returns, but falsely told people they were fixed rate individual savings accounts.
The government launched an investigation into the FCA’s handling of LCF in the spring of last year.
The report said there were “significant gaps and weaknesses” in the FCA’s policies and practices and that the mini-bondholders “were entitled to expect, and receive, more protection from the regulatory regime in relation to an FCA-authorised firm (such as LCF) than that which, in fact, was delivered by the FCA”.
Simon Morris, financial services partner with law firm CMS, said Rathi is “promising to sweep a new broom on misconduct”.
“Nikhil Rathi sees multiple obstacles to the FCA’S mission to prevent consumer harm and proposes three steps to change this: take action sooner – speed up Enforcement because it takes too long to get results; call out concerns against firms and worry less whether they can sue the FCA; be prepared to make mistakes – the FCA is institutionally cautious and must be more prepared to get things wrong,” he said.