Consumer investments data review April 2021 – March 2022

Our Authorisations Division is the gateway to financial services. When firms and individuals apply to be regulated, they must meet stringent minimum standards. We will refuse to authorise a firm or individual if we are not satisfied that they meet, and will continue to meet, these standards. In these cases, we will inform the applicant that we are minded to refuse them, and the firm or individual will often withdraw their application rather than face a refusal case (we refer to this as an FCA-led withdrawal). Withdrawals can also be firm-led, for example a firm changes its mind. Submissions of extremely poor quality are rejected on the basis they do not amount to an ‘application’ – this happens prior to scrutiny.

One of the key harms we want to prevent at this gateway is individuals avoiding the consequences of giving unsuitable advice by moving to or setting up new firms. This is known as phoenixing. In some cases, individuals seek to set up a new firm before their existing firm starts to get complaints, known as lifeboating.

Table 1: Authorisations applications received

Table 2: Authorisations applications assessed

* This includes firms in the following 6 Consumer Investments portfolios: Financial advisers and investment intermediaries; SIPP operators; Investment platforms; Wealth management and stockbrokers; Investment-based crowdfunding platforms; Peer-to-peer lending.

On 31 March 2022, we supervised 6,531 firms within the Consumer Investments market. Firms in these portfolios acted as principals for 8,247 unique registered appointed representatives[4]. To help us track the progress of our Consumer Investments Strategy, we monitor data on supervisory cases that involve higher risk investments or potential investment scams. Data for cases involving potential scams has been extracted by identifying cases relating to Consumer Investments where the supervisor dealing with the case has included the term scam in their description of the case. These cases have then been reviewed to exclude those which do not relate to a potential investment scam (eg other types of scams). We have also included data from our specialist supervisory teams who tackle harms caused by particular products or firms.

Table 3: Supervisory cases that involve higher risk investments or potential investment scams

We saw a 116% increase in supervisory cases opened involving investment scams or higher risk investments. This was due to:

• More cases opened in our Financial Promotions and Enforcement Taskforce to tackle harmful online promotions. As outlined in our recent Data Strategy Update,[5] we are scanning an average 100,000 websites created every day to identify newly registered domains with characteristics that could be used for scams or fraud.
• More cases being referred to our cryptoasset supervision team about potentially unregistered cryptoasset businesses and potential scams, including through our improved detection of online promotions.

Unauthorised business

We take action against firms and individuals who are not authorised or exempt under FSMA but who carry on regulated activities in breach of the legislation and/or who disregard restrictions on financial promotions. Many firms and individuals acting in breach of FSMA and carrying on unauthorised activity are likely to be scam firms and involved in investment fraud.

We received nearly 30,000 reports of potential unauthorised business between April 2021 and March 2022. Over 70% of these reports we are either already aware of or fall outside our remit. We either log the remaining reports for intelligence purposes or open them as enquiries for further review. Enquiries may involve us working to disrupt unauthorised business, such as issuing consumer alerts[8], taking steps to remove websites and working with firms to resolve a breach. The most serious cases become enforcement investigations into serious misconduct using our formal powers. We currently have 49 enforcement investigations into 217 unauthorised firms and individuals.

Due to the high volume of reports and their complexity, the outcomes of these can vary from year to year depending on many factors. These include the nature of the reports, our approach to triaging cases and the resources we can dedicate to this work. We are using data to allow us to focus our efforts on the cases that represent the most serious risks. Some of the outcomes are also inter-dependent. For example, one of the reasons that we closed fewer cases after engaging with firms is that we have published more consumer alerts, which may not require any firm contact.

Table 7: Action against unauthorised firms and individuals

* We identified an error in this figure when preparing the April 2021 – March 2022 data review and corrected it in this publication.  We have now also corrected this in the previous April 2020 – March 2021 publication. 

Scams and higher risk investments where regulated firms and individuals are involved

We have 33 live enforcement investigations or proceedings involving the conduct of regulated firms and individuals where consumers have invested in potential scams or higher risk investments. These are investigations which often involve multiple subjects (firms and individuals), which makes the total number of firms and individuals under investigation significantly higher. In most of these cases, we liaise with law enforcement and/or other agencies such as HM Revenue & Customs (HMRC) and the Insolvency Service.

We can also intervene by imposing requirements on firms or varying their permissions, either with their voluntary agreement (known as a VREQ or a VVOP) or on our own initiative (known as an OIREQ or an OIVOP), to restrict their activities to limit harm. Typical requirements include stopping firms from promoting and selling specific products, from providing specific services or restricting use of their assets, for example, to meet their potential redress liabilities.

Table 8: Action against regulated firms and individuals

* This figure has also been updated following review

We know we can’t stop every scam from happening, but we want to shrink the audience that scammers can target and help support the Government’s priority to make the UK a more unattractive place to commit financial crime. One of the ways we do this is through our ScamSmart[11] campaign, which aims to empower consumers with the knowledge and tools to help prevent them losing money to scams.

Table 9: ScamSmart visitors

We also track which investment and pension products consumers are checking on the ScamSmart Warning List tool, and how consumers heard about these products. This shows which investment and pension products are being promoted to consumers, and by which channels. We have seen a 55% increase in checks on cryptocurrency offers and a 16% increase for pension transfers. Most ScamSmart users said they heard about investments online or on social media (53%), and we saw a notable increase in offers ‘recommended by a friend’ (to 17%).

InvestSmart

We launched our InvestSmart[12] campaign in October 2021, which targets inexperienced investors to provide them with information to make better-informed investment decisions. Our online and social media advertising reached over 3.2m people on Instagram and Facebook, over 4.8m on Twitter and 4.4m on TikTok. 48% of those seeing an InvestSmart ad said they would make sure they understand the risks presented by a high-risk investment, compared to just 26% who hadn’t seen one.

The aim of the advertising was to direct consumers to our InvestSmart pages, which have been viewed 79,003 times. Our most popular article is 5 questions to ask before you invest[13], which has been read by nearly 10,000 people (9,816 unique views).

Between April 2021 and March 2022, we received nearly 105,000 enquiries to our consumer helpline. When a consumer contacts us, we resolve the enquiry immediately where we can. However, we often guide the consumer to contact the firm or other organisations to progress their enquiry. We will also often investigate enquiries further if we suspect misconduct.

As well as trying to help consumers who call us, we monitor the information they give us as this is a valuable source of intelligence. Along with other sources, we use it to inform our action against fraudulent and unauthorised activities, and our collaboration with other anti-fraud agencies.

In 2021/22, enquiries to our helpline about investment products decreased by 28% from 2020/21. One reason for this might be a number of spikes we saw in 2020/21, for example around the surge in trading ‘meme stocks’ in January 2020. Enquiries to our helpline about potential scams continue to grow, on top of already significant increases since 2020. Scam enquiries made up one third of all helpline enquiries in 2021/22.

Table 10: Enquiries to our consumer helpline

*Throughout this section the total number of enquiries about potential scams contains instances where one consumer has contacted us more than once about the same potential scam, for example, to provide further information. Due to the way our data is recorded, the data on the subsets of investment scams and specific types of scams do not include these subsequent enquiries. 

Enquiries about potential boiler room scams are still the most common type of scam enquiry we receive. This is where fraudsters cold-call investors offering worthless, overpriced or non-existent investment opportunities. Figure 6 below also shows the continued rise in enquiries about potential cryptocurrency scams (59% higher than in 2020/21), FCA impersonation scams (72% higher) and recovery room scams (89% higher).

We collect data on whether consumers have invested in potential scams at the point they contact us. Most consumers contacted our helpline about possible scams before investing any money. But for some types of scam consumers were more likely to contact us after investing. For example, 79% of consumers who contacted us about potential cryptocurrency scams had already invested when they contacted us, and 77% for potential foreign exchange scams.

We also try to capture how much consumers have invested in potential scams where we can. Looking at the top 3 kinds of scams where consumers invested before contacting us (cryptocurrency, boiler rooms and foreign exchange), we only have data on the amount invested in around two thirds of cases. Of consumers who told us how much they had invested, 61.5% had invested up to £10,000, 24.9% had invested between £10,000 and £50,000, and 13.5% had invested over £50,000. This underlines the difficulties consumers face in the investment market and the harm when things go wrong.

This data underlines the importance of our work to help consumers access and identify investments that suit their circumstances and understand the risks they are taking. We recently published our policy statement on strengthening our financial promotion rules for high-risk investments[14]. These new rules will help to ensure that consumers understand the risks involved before investing, and place higher standards on firms approving financial promotions for unauthorised persons.

Cryptoasset promotions currently sit outside our remit, giving us few tools to address the harm from these promotions. We welcome the Government’s intention to legislate to bring certain cryptoassets within the Financial Promotions regime. As we have said before, consumers investing in cryptoassets[15] should be prepared to lose all of their money.