Consumer investments data review 2020

Data Published: 18/01/2021 Last updated: 13/07/2021

A summary of our work to tackle consumer harm in the investment market, between 1 January and 31 October 2020.

Most of the consumer investment market meets the goals of retail investors. But there are some areas where the market is causing real consumer harm.

Some of the most serious harms we see relate to investments outside our regulatory perimeter and online scams, many based overseas. We are also seeing a concerted and conscious effort to promote higher risk investments that are not appropriate for the people being targeted. Most retail investors’ needs can and should be met by more straightforward, mass-market investments.

Our research shows that consumers, particularly the more vulnerable, are less likely to understand the risks, read the small print and don’t know what to do when things go wrong. These consumers can also often neither afford the loss nor recover from it. Preventing this consumer harm is a key focus for us. We seek to prevent dishonest firms and individuals entering the perimeter and to act against firms and individuals we authorise who cause consumers harm.

Our Business Plan 2020/21 sets out our aim to change this market so that consumers have access to investment products that are appropriate, they can make effective decisions and the firms we authorise operate to high standards. We aim to deliver a consumer investment market that works well for the millions of people who stand to benefit from it and the businesses for which it provides essential funding.

As part of this, our Call for Input (CFI) on Consumer Investments looks at areas where the consumer investment market is not working well for customers and seeks views on what changes we can make to improve protections and outcomes in this market.

What products or services fall under the FCA’s remit, and to what extent, is a complex question. Our Perimeter Report sets out our assessment of some of the areas where the boundary between what we regulate and what we don’t regulate can cause acute consumer harm. Because our powers for investigation and enforcement are sometimes limited in these areas, we work closely with other regulatory and law enforcement agencies who can often be better placed to take action.

Like other public services, we make difficult choices about where to prioritise our efforts to reduce consumer harm. We are rightly accountable for our work to protect consumers. This publication – the first in a regular series – offers greater transparency about our activities. It focuses on the period between 1 January and 31 October 2020.

1. Scope of the data

Timeframe

The data covers the period from 1 January 2020 to 31 October 2020, unless indicated otherwise. Where there is a comparison or reference to the previous period, this relates to the twelve-month period from 1 January 2019 to 31 December 2019, unless indicated otherwise.

Investment scams

We often talk about fraud or scams interchangeably. Both involve dishonest firms and individuals preying on consumers to try and take their money illegitimately. In this update, we refer to this range of practices as ‘scams’.

Higher risk investments

Higher risk investments may be suitable for consumers who understand the risks and can absorb any potential losses. Overall, though, most retail investors’ needs can and should be met by straightforward, mass-market investments.

For our purposes here, higher risk investments include:

  • mini-bonds (also known as high interest returning bonds) and other non-readily realisable securities
  • unregulated collective investment schemes (UCIS)
  • some structured products, derivatives and Contracts for Difference (CFDs)
  • Venture Capital Trusts (VCTs)
  • exchange tokens or cryptocurrencies (eg Bitcoin)
  • investment-based crowdfunding
  • peer-to-peer lending  

Firms

We supervise most regulated firms as members of a portfolio of firms that share a similar business model. This update covers firms in the following portfolios, unless stated otherwise:

  • Financial Advisers and Investment Intermediaries
  • SIPP operators
  • Investment Platforms
  • Wealth Management & Stockbrokers
  • Investment-based Crowdfunding Platforms
  • Peer-to-peer lending

Financial crime

We will shortly publish the analysis of the data we received for the annual financial crime data return (REP-CRIM) for the reporting periods 2017/18, 2018/19 and 2019/20. The REP-CRIM asks optional questions on the type of fraud firms consider most prevalent in the reporting periods. These cover all types of fraud including investment fraud.

Structure

This update is broken out into 3 sections that echo the strategic outcomes of our consumer investments strategy:

  • Consumers are protected from acute harm by our work to stop and disrupt firms and individuals causing such harm.
  • Consumers are supported and guided to investments that meet their needs.
  • When things go wrong, as they sometimes will, firms can put this right by dealing fairly with consumer complaints and paying redress.

2. Stop and disrupt

2.1. Preventing firms and individuals entering the perimeter

We seek to prevent harm by ensuring that all regulated firms and individuals meet our minimum standards. We will refuse to authorise a firm if it does not satisfy us that it meets, and will continue to meet, these standards.

Addressing risk of harm at the authorisation stage prevents firms that do not meet our minimum standards from entering the regulatory perimeter. It can also be a more cost-effective approach, because it is generally more efficient to prevent firms and individuals entering the perimeter than using supervision and enforcement tools once they are authorised.

While we support firms to help them make the changes necessary for authorisation, this is not an open-ended process. We must decide whether a firm should be authorised within statutory deadlines. Our experience shows us that some firms are not ready to meet our minimum standards for authorisation. In these circumstances, we will recommend the refusal of a firm’s or individual’s application or a firm will withdraw rather than face a refusal case. Between 1 January 2020 and 31 October 2020, 4,183 firms and individuals applied for authorisation in the consumer investments market. Of these, 4 firms had their application refused, and a further 354 firms and individuals withdrew because they couldn’t demonstrate that they could meet the standards required. This represents almost 1 in 10 applications.

 

To prevent harm in the consumer investment market, the FCA stopped applications from 358 financial services firms and individuals between 1 January and 31 October , where the potential for consumer harm was identified. This represents almost 1 in 10 applications.

 

We will revoke authorisation if a firm no longer meets our minimum standards. There are various circumstances that could lead to the cancellation of a firm’s authorisation. For example, a firm that can no longer fulfil its basic regulatory obligations, such as paying fees or submitting returns. Between 1 January and 31 October, 131 firms had their authorisation revoked across all FCA regulated firms because of breaches of Threshold Conditions.

 

131 firms had their authorisation revoked across all FCA regulated firms because of breaches of Threshold Conditions 

 

We give greater scrutiny and resources to firms and business models that pose the greatest risk of harm to consumers. This includes preventing individuals responsible for unsuitable advice from avoiding the consequences of their actions by moving to or setting up new firms – a practice known as phoenixing. In some instances, individuals have set up and sought authorisation for a new firm before their existing firm starts to receive complaints about poor past advice – a practice known as lifeboating. In the past year, we have prevented 12 advice firms from gaining authorisation where phoenixing was suspected. In all those cases, the firm withdrew their application when we raised our concerns with them rather than be taken through the refusal process. In 2 other cases where we suspected phoenixing, conditions were placed on the approval of the firms to ensure that the new firm could not be used to facilitate the avoidance of liabilities.

 

12 financial adviser firms prevented from gaining authorisation where phoenixing was suspected

 

Our phoenixing measures extend to financial advice firms seeking to cancel their authorisation. We carry out robust checks to establish whether a firm’s exit is motivated by a desire to avoid liabilities and, where we have concerns, we take appropriate action. This may include a recommendation to refuse the application for cancellation. In all cases we log intelligence to ensure that future applications are picked up if the firm or the individuals behind it re-apply for authorisation. We also pay close attention to candidates put forward by financial advice firms for approval as holders of senior management or controlled functions. We seek to identify those with a history of giving unsuitable advice themselves - or of having allowed others to give poor advice on their watch - particularly for defined benefit (DB) pension transfers.

2.2. Regulatory oversight of the market

We supervise firms and individuals controlling firms by monitoring the way they conduct business. We use judgement to supervise against a framework of principles and rules that represent minimum standards of conduct.

We supervise nearly 6,500 firms within the 6 portfolios this update focuses on. These firms act as principals for nearly 8,500 unique registered appointed representatives.

 

We supervise nearly 6,500 firms in the consumer investments market, these firms act as principals for nearly 8,500 registered appointed representatives

 

Our data strategy aims to harness the power of data and advanced analytics to enhance our ability to supervise this market. We are developing tools such as web-scraping to spot web adverts from fraudulent operations and network analytics to identify companies that may be connected to fraudulent activities. We are also exploring the use of predictive, machine learning tools which use our data to spot risky firms sooner.

 

In 2020 1,542 supervisory cases were opened involving scams or higher risk investments

 

Chart tips: hover over data series to view the data values and filter the data categories by clicking on the legend.

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1,542 supervisory cases were opened involving scams or higher risk investments between 1 January and 31 October 2020. New cases have remained high throughout the year, but peaked in the months of February, June and July 2020.

During this period, 1,042 cases were closed. Of these 68% were closed in supervision following investigation, 19% were referred to other parts of the FCA (including enforcement) or other agencies (including law enforcement agencies) for ongoing investigation and 13% were closed following regulatory action. Regulatory action includes firm visits or communications, mandating action to senior management or making use of our Financial Services and Markets Act 2000 (FSMA) powers (including variations of permissions and undertaking enforcement action). 

Pension scams

When a consumer falls victim to a pension scam or money from their pension ends up in investments that are not appropriate for them, their losses can be devastating. We have a specialist supervision team that focuses on cases where we suspect potential pensions harms. This includes scams involving pension liberation and pension transfers or where we suspect unsuitable advice has led to a consumer ending up in investments that are clearly not suitable for them.

Among the 1,542 cases, 135 were opened by this specialist team in 2020, a 24% increase on the number of cases opened in the whole of 2019 (109). These cases have already resulted in 10 firms varying their permissions so they can no longer undertake the activities that caused consumers harm, with a further 2 cases being referred to enforcement.

Financial promotions

Online platforms, such as search engines and social media platforms, play an increasingly significant role in communicating financial promotions to consumers. Consumers are more readily exposed to scams and promotions for high-risk investments which, directly or indirectly, lead consumers onto paths resulting in harm. These financial promotions are an important focus of our supervisory activities.

The financial promotion restriction, which is contained in legislation (section 21 of FSMA), among other things restricts the ability of unauthorised persons to promote financial services activities and products (including investments) unless the financial promotion is approved by an authorised person. However, exemptions from this restriction exist for promotions to ‘high net worth’ (wealthier) and ‘sophisticated’ (more experienced) investors.

Since we introduced the Temporary Product Intervention (TPI) on the marketing of speculative illiquid securities to retail investors at the beginning of 2020, firms have increasingly used these exemptions. Before the TPI was introduced, approximately 20% of the websites we reviewed had been approved by an authorised person, however, between January and August 2020 this only applied to 3% of the websites we reviewed. Since August 2020 this figure has dropped to almost 0%.

Most websites we look at fail to meet the relevant requirements for the exemptions to apply. These failings mean there is a risk that retail investors may access inappropriate higher risk and potentially scam investments.

We think online platform operators, like Google, should bear clear legal liability for the financial promotions advertised on their platforms. 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 higher risk investments but to our work to address online harms – including scams – more generally.

Where we identify issues with financial promotions these are handled as supervisory cases, where a regulated firm or individual is involved, or as unauthorised business, where this is not the case.

2.3. Acting against firms and individuals who cause consumers harm

We decide whether to take enforcement action based on whether we believe there has been serious misconduct. We consider factors such as the severity of the harm arising from the suspected misconduct, whether the suspected misconduct has wider implications, the extent to which it may have involved lack of fitness and the public interest in investigating the matter. This action includes issuing warning notices, publishing consumer alerts, taking down websites, taking civil court action to stop activity and freeze assets, insolvency proceedings and, for the most serious cases, criminal prosecution.

In many of our cases, harm has already been caused, but our intervention can prevent it from getting worse. The outcomes of investigations also have a preventative effect through credible deterrence.

The extent to which our remit and powers are engaged will vary depending on the circumstances. The protagonists in most scams are outside our regulatory jurisdiction and, in many cases, another law enforcement agency is better placed and resourced to tackle fraud. So we work closely with other agencies to maximise our impact. We routinely share information and intelligence with our partners in the National Economic Crime Centre (NECC), the multi-agency body that coordinates the response to economic crime. The NECC and its partners have identified investment fraud as a priority area, and will be coordinating a multi-agency programme against this threat in early 2021.

Unauthorised business

We take enforcement action against firms and individuals that 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 some element of investment fraud.

Such activity may include targeting UK consumers via unauthorised financial promotions and offering investments in unauthorised collective investment schemes, unauthorised deposit taking schemes, unauthorised investment advice and management, pension liberation fraud and/or pension scams.

Between 1 January to 31 October 2020, we have received over 24,000 reports of potential unauthorised activity. These reports are made up of referrals from our Consumer Helpline, other agencies such as the Police and other regulators both domestically and abroad. In 2019 we received 20,300 reports, so we have seen a sharp increase in reports in 2020.

 

Between 1 January and 31 October 2020, we have received over 24,000 reports about potential unauthorised business

 

If the firms and/or individuals reported to us fall within our remit then we investigate and act on as many as we can. In total, our work on scams has resulted in approximately £14.32 million being awarded under restitution orders, over £6.9m worth of funds being frozen and over £5.9m being secured for investors for redistribution between 1 January and 31 October 2020. Table 1 summarises our activities.

 

Our work on scams has resulted in approximately £14.3 million being awarded under restitution orders, over £6.9m worth of funds being frozen and over £5.9m being secured for investors for redistribution.

 

Table 1: Unauthorised business activities summary January – October 2020

Types of activities Volume (report, case or value)

Reports of unauthorised activity

24,366

Enquiries opened between January and October 2020 885
Enquiries closed between January and October 2020 913
Enquiries closed by way of engagement with unauthorised firms 63

Consumer alerts published

1,053

Total live investigations at 31 October 2020

47

Investigations opened in January – October 2020 10

Individuals under investigation at 31 October 2020

166

Restitution orders

£14.32m

Consumer funds frozen between January – October, as at 31 October 2020 

£6.9m

Consumer funds redistributed secured for redistribution between January – October, as at 31 October 2020

£5.9m

We review and assess every report of unauthorised activity. Of the 24,000 reports sent to us about potential unauthorised business activity, a large proportion of these related to either matters that we were already aware or unregulated activities and/or concerns about authorised firms. For matters that we were already aware of, these would include either live cases or investigations, or entities that we have already taken action against (e.g. by way of issuing an alert or looking into as an enquiry). Reports on authorised firms are passed to our supervision team.

The remaining reports were logged for intelligence purposes or opened as enquiries to look into further. Enquiries are cases which do not use formal powers, and which are part of our triaging process. Enquiries include disruption activity such as issuing consumer warnings and taking steps to remove websites, as well as engagement with unauthorised firms to resolve a breach, such as restructure or repayment of monies. 

We have increased the number of alerts issued about unauthorised firms and individuals. In 2019, we issued 578 alerts against unauthorised firms or individuals. Many of these involved breaches of the financial promotion restriction online. In 2020 to end October we have issued 1,053 alerts, 401 of these were about ‘clone’ firms where fraudsters pretend to be authorised firms. For every alert we issue, we also take steps to try to suspend any linked websites and/or social media.  

 

We have issued 1,053 consumer alerts in 2020 to end October about unauthorised firms and individuals, 82% higher than in 2019

 

The most serious cases will then become investigations using our formal powers. We had 47 live investigations at 31 October 2020 involving unauthorised business, the majority of which also involve scams. For our investigations which involve scams, we aim to take robust criminal action, especially when we have evidence that UK individuals are involved in perpetrating the crime. We have a number of ongoing criminal investigations that we expect to bring charges on in 2021. These range from:

  1. the sale and management of worthless investments by multiple boiler room operations linked to transnational criminal organisations
  2. the promotion of dubious online trading platforms via social media
  3. the provision of advice and management of investments into online trading platforms
  4. the operation of unauthorised collective investment schemes and boiler rooms
  5. the promotion of investments to consumers for investment into high risk products

We have achieved many public outcomes from our investigations against unauthorised firms and individuals. Table 2 summarises these for 2019 and 2020:

Table 2: Actions and public outcomes for investigations in 2019 and 2020 for unauthorised firms and individuals

Firm or individual

Action

Further information

2020

Mr Robin Forster, Fortem Global Limited and Mr Richard Tasker

Commenced civil proceedings. Director has agreed undertakings with the court relating to £1.6m

FCA commences High Court proceedings over unauthorised collective investment schemes

Avacade & Others

Restitution orders for £10m against firms and directors

High Court orders illegal pension introducers Avacade, Alexandra Associates and their directors to pay £10,715,000 restitution to consumers

Mr Lee Skinner, Ms Karen Ferreira, Mr Clive Mongelard, Mr Tyrone Miller, Gemini Asset Management and Venor Associates

Restitution orders for £3.62m against directors and promoters

FCA secures orders for victims of unauthorised share scheme

Stephen Allen

Charged 1 individual,  with perverting the course of justice. Trial listed for October 2021

FCA charges Stephen Allen with conspiracy to pervert the course of justice

Bright Management Solution Limited, Soccer League International Limited, Soccer League UK Limited, and senior individuals at these firms

Freezing order for £1.3m

The FCA commences civil proceedings in relation to alleged unauthorised deposit takers

24HR Trading Academy Ltd, Mohammed Fuaath Haja Maideen Maricar

Commencement of civil proceedings, freezing and restraining order for circa £600,000

FCA commences civil proceedings in relation to alleged unauthorised investment advisers

London Property Investments UK Ltd, NPI Holdings Limited, Daniel Stevens (the sole director and shareholder of both companies) and his father Anthony Kafetzis

Civil restraint order and freezing order circa for £300k plus 17 properties worth approx. £3.9m

FCA commences civil proceedings in relation to alleged unauthorised regulated mortgage contracts and sale & rent back agreements

Ian Hudson

Charged with s9 Fraud Act (carrying on a business with the intention to defraud creditors) and two counts of s19 (advising and accepting deposits). Trial likely to be late 2021 at earliest.

 

Richard Faithfull

One charged with Money Laundering (s327 POCA). Trial likely to be early 2022.

FCA charges Richard Jonathan Faithfull with one offence of money laundering

Asset Assured

£425k returned to 110 investors.

 

2019

Paradigm Consultancy SA

£2.5m returned to 573 investors

FCA returns funds to land banking victims

Midas Financial Ltd

£381k returned to 186 investors

 

Renwick Haddow

Bankruptcy - £53k received for restitution (yet to be paid to investors)

Capital Alternatives: information for investors

Robert McKendrick

Jailed for 6 months for breach of his worldwide freezing order (reduced to 3 months on appeal)

FCA takes action for contempt of court

Plateau Development and Land Ltd

£77,230 paid out in compensation to 17 investors

Countrywide Land Holdings Limited, Regional Land and Consolidated Land UK Limited land banking schemes - information for investors

Digital Wealth Limited, Outsourcing Express Limited, Samuel Golding, Shantelle Golding aka Shantelle Deacon, aka Shantelle Shillingford

£3.5m recovered via restitution order

Unauthorised firm and directors to pay restitution to consumers

24HR Trading Academy Ltd, Mohammed Fuaath Haja Maideen Maricar

Obtained a £320,000 cash undertaking plus £150,000 worth of vehicles– funds to be paid back to investors.

 

XCore Capital Ltd, Jonathan Chitty

Declared an unauthorised investment scheme. £200,000 frozen – funds to be distributed to investors following conclusion of liquidator investigation.

FCA wins case against unauthorised forex firm

Mr Gopee

Confiscation Order for £5.1m

FCA secures confiscation order totalling £5 million against illegal money lender

Manraj Singh Virdee

Confiscation Order for £172,000 and 2 years’ suspended prison sentence

Manraj Virdee sentenced to 2 years for illegally operating an investment scheme and fraud
FCA secures confiscation order totalling over £170,000 against convicted fraudster

Park First Limited

Commenced proceedings

FCA seeks compensation for Park First investors

Mark Barry Starling Confiscation order of £291,070.26 FCA secures confiscation order totalling £291,070 against convicted fraudster
Samrat Bhandari, Muhammad Mirza and Paul Moore Confiscation proceedings FCA urges victims to come forward after getting confiscation order against three individuals

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

We have approximately 30 live investigations or proceedings relating to the conduct of regulated firms and individuals where consumers have invested in potential scams or higher risk investments. These are ‘parent’ investigations which often involve multiple subjects (firms and individuals), and so the total number of firms and individuals under investigation is significantly higher. In most of these cases, we have liaised with law enforcement and/or other agencies such as HM Revenue & Customs (HMRC) and the Insolvency Service.

Firms and individuals must always meet certain minimum standards to continue to be authorised by us. We act against firms and individuals that do not meet such criteria. For example, we will seek to ban individuals convicted of criminal offences involving fraud, dishonesty and selling investments scams.

We have finalised enforcement action against 1 firm and 5 individuals in 2020. In 2019, we finalised action against 4 individuals. We also decided to act against a further 5 individuals and 3 firms. However, in 5 of those cases our decision has been referred to the Upper Tribunal, which will determine the appropriate action.  During 2019 to 2020, we fined, or decided to fine the subjects of our investigations more than £80m. These actions related to higher risk investments are summarised below:

Table 3: Actions and public outcomes for investigations in 2019 and 2020 for regulated firms and individuals

Firm or individual

Action

Further information

2020

LJ Financial Planning Ltd

Fine

Final notice

Mr Bartlett

Prohibition from performing any regulated activity

Final notice

Mr Howson and Mr Butterfield

Prohibition from performing any regulated activity

Final notices

Mr Oakley

Prohibition from performing any regulated activity

Final notice

Mr Grant

Prohibition from performing any regulated activity

Final notice

2019

Mr David

Prohibition from performing any regulated activity

Final notice

Mr Ford and Mr Own

Fine and prohibition from performing any regulated activity

Final notice and Final Notice

Financial Page Ltd, Henderson Carter Associates Limited and Bank House Investment Management Limited
Andrew Page, Thomas Ward, Aiden Henderson, Robert Ward and Tristan Freer

We decided to fine and prohibit the individuals, and fine a firm, and to publicly censure 2 firms already in liquidation. However, the Upper Tribunal will determine the appropriate action.

Decision notices

Mr Bhandari

Prohibition from performing any regulated activity

Final notice

Our interventions can also play an important preventative role. So far in 2020, Enforcement and Supervision departments have worked together to persuade 12 firms to agree voluntarily through the imposition of requirements (known as VREQ) to restrict their activities in relation to the promotion and distribution of mini-bonds, CFDs and other non-standard investments.

Enforcement case study

We acted using the FCA’s own-initiative powers (known as OIREQ) in May 2020 to ban 4 passported-in Cypriot CFD firms (F1 Markets Limited / Hoch Capital Limited / Rodeler Limited and Magnum FX Limited). 

These firms were operating from, and solely regulated in, Cyprus without having any UK physical presence. All 4 firms targeted UK retail investors via online platforms with high risk CFD products, using various techniques such as pressure selling, fake celebrity endorsements, and the failure to disclose charges, to make increasingly large investments in their products. Certain consumers were even encouraged to take out credit to make payments. Several consumers lost over £100,000 to these firms.

We acted using the power under s196 FSMA to prevent these firms from offering regulated financial services in the UK, to close any open positions held with UK consumers and to return funds to consumers. We had never previously used this power and it resulted in all 4 firms exiting the UK market, and saw almost £8m returned to over 1,300 consumers.

3. Support and guide

3.1. Stop scams through behaviour change campaigns

We know we cannot stop every scam from happening, but we want to do everything we can 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 campaign. The campaign aims to empower consumers with the knowledge and tools to help prevent them falling victim to scams. The campaign focuses on two core objectives – raising consumer awareness of the key warning signs associated with a scam and driving use of our Warning List tool.

Over 1 million people have visited our ScamSmart website since its launch in 2014, and more than 20,000 have seen our warnings about specific, unauthorised firms. Since the campaign started, our tracking research indicates at-risk consumers are now more likely to consider the risk of scams when investing, are more likely to be aware of the warning signs of a scam, and more likely to check with us before investing.

From January 2020 to March 2020, our investment scams campaign resulted in searches for ScamSmart increasing 64% vs. 2019. Between July and September 2020, we also ran a pensions scams campaign. Entitled ‘Don’t transfer deadline day’ it focused on the parallels between a key warning sign of a pension scam and the football transfer deadline. This activity secured over 300 pieces of media coverage, including 33 national print and online pieces and 35 broadcast interviews including BBC Radio 4’s Today Programme and LBC.

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Figure 2 shows in 2020 almost 110,000 people visited our ScamSmart website, over 21,000 people checked an investment or pensions opportunity and there have been 22,000 searches for a firm on the warning list. Over 5,700 users went on to check the Financial Services Register. On-site feedback showed 88% of users found our website helpful, with a number of consumers indicating they had avoided a scam thanks to the website.

In 2020, c.110,000 people visited our ScamSmart website and 22,000 searched for a firm on the warning list

 

Building on ScamSmart, we recently confirmed that we will start a new consumer harm campaign to warn people of the dangers of scams and higher risk investments and to help them make better investment decisions. To inform our approach, we ran a digital campaign to warn consumers about the risks of higher return investments by intervening with our messages when people were looking for investments online. The campaign drove 41,900 people to our website, and delivered 2.2m Google adverts (Pay Per Click impressions) and 67,472 Twitter adverts (twitter ad impressions).

 

Our digital campaign to intervene in consumers’ investment journeys had almost 42,000 unique pageviews, 2.2m Pay Per Click impressions and over 67,000 twitter ad impressions

3.2. Providing direct consumer support through our Consumer Helpline

Over the 10 months to 31 October 2020, we received nearly 90,000 enquiries from consumers (an average of 9,000 per month). We monitor the subject or product type that consumers enquire about, with 9.5% relating to investment products and 5.5% related to pensions or retirement products.

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In 2020 to end October, we received 90,000 enquires from consumers, of which 9.5% related to investment products and 5.5% to pensions.

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Overall enquires to the FCA about possible scams has increased year on year between 2016 and 2019, but increased more sharply in 2020. Almost 20,000 of these enquiries were received between January and October 2020. This is 23% higher than scam related enquiries in the whole of 2019.

For every consumer enquiry we receive we will capture the organisation name, product, issue and a description of the query in INTACT - the FCA case management system. Reports on this data are produced and reviewed each month that help us to monitor themes and spot emerging issues.

The FCA received almost 20,000 consumer enquiries about potential scams in 2020, with investment scams accounting for 57% of all these enquiries. This is 23% higher than enquiries in the whole of 2019.

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Share and bond scams (often run from ‘boiler rooms’ where fraudsters cold-call investors offering them worthless, overpriced or even non-existent shares or bonds) accounted for almost 43% of all enquiries about potential scams to the FCA by consumers between January and October, with reporting volumes up 38% compared to the same period in 2019.

James’s story

James contacted us as he recently received his pension and decided to invest a lump sum in a Corporate Bank Bond. On the firm's website, they claimed to be a European Economic Area (EEA) authorised firm regulated by the FCA. After we asked further questions surrounding the situation it appeared that James was not dealing with a genuine EEA authorised firm.

The case was referred to our Unauthorised Business Department who identified it as a scam. A warning was published on the register and the unauthorised firm list the following working day. James received a follow up call to refer him to the warning and the relevant guidance was provided.

 

We also saw a 58% increase in enquiries about FCA impersonation scams (where fraudsters contact people claiming to be the FCA), a 69% increase in cryptocurrency scams and a 20% increase in recovery room scams (where fraudsters approach investors who have been scammed or had failed investments, offering to help them get their money back for an upfront fee).

When a consumer contacts us, where we can resolve the enquiry immediately, we do so. However, we often guide the consumer to contact the firm or other organisations as appropriate to progress their enquiry. In addition, we will often investigate enquiries further if we suspect misconduct, with 20% of enquiries received referred to our supervisory or enforcement teams for action.

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

4. Redress

4.1. Analysis of consumer complaints and redress paid by firms

We collect complaints data from firms to enable us to monitor the number of complaints that firms receive, how this changes over time and which products or services people have complained about the most.

We use the data to help assess how well firms are treating their customers and how their performance changes over time. We also use the data to guide our work in supervising firms and markets, and to highlight potential concerns with products. For example, we might use complaints data to help inform new thematic supervision projects examining a specific sectoral issue or as a prompt for supervision action against a specific firm.

Firms must report all the complaints they receive. Those with over 500 complaints opened in a 6-month period must also report how many accounts or plans they have in force. In the year from 2019 H2 to 2020 H1, firms reported 131,471 investment complaints for 49m client accounts and 114,062 decumulation & pension complaints against 41m plans in force. 

This equates to around 2.7 complaints per 1,000 products in investments and 2.8 complaints per 1,000 products for decumulation & pensions. These cover all complaints, not just complaints relating to higher risk investments or scams. The level of complaints received about pensions and investments products is comparatively low – in the same period firms reported 4.8 complaints per 1,000 banking and credit card products for example.

 

£56.7m of redress was paid for investments complaints and £70.1m for pensions complaints

 

While pensions and investments products tend to receive lower volumes of complaints, when consumers do complain firms tend to uphold those complaints at higher rates and pay out higher levels of redress – 61.1% of investment complaints in H2 2019 and H1 2020 were upheld, and £56.7m of redress was paid (£826 per upheld complaint), while 46.4% of decumulation & pensions complaints were upheld and £70.1m redress was paid (£1,145 per upheld complaint).

Most complained about products

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Complaints about higher risk investments are higher than the average across all investments and pensions

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While the most complained about products in pensions and investments are those that tend to be held by more consumers (such as workplace and non-workplace pensions, investment ISAs and platforms), when adjusting for the number of products in the market, high risk investment products tend to appear at the top of the list, at significantly higher than 2.7 or 2.8 complaints per 1,000 products.

5. Protecting consumers and improving the mass market

Stop and disrupt: protecting consumers from harm

Over the years we have made significant changes to protect consumers from harm from higher risk investments. For example, in 2019 and 2020 we have:

Collectively, we estimate that these interventions will deliver a net benefit to consumers of at least £320.8m - £645.7m every year.  

Support and guide: making the mass market work well

In addition to protecting consumers from harm we have made changes to improve the mainstream market. For example, in 2020:

Redress: making sure that consumers can secure redress when things go wrong

We have also increased the protection available to consumers when things go wrong. For example, in 2019 we: 

  • More than doubled the maximum amount that the Financial Ombudsman Service can award to a consumer against a regulated firm, to £350,000. 
  • Increased the Financial Services Compensation Scheme’s compensation limit for investor compensation from £50k to £85k.

6. Next steps

Our Call for Input on Consumer Investments closed on 15 December 2020. We will be using the feedback received to shape our work over the next 3 years.

Reducing harm in the Consumer Investment market was identified as a business priority for the next 3 years in the FCA’s 2020/21 Business Plan and will continue to be a major focus for us.

We will publish this update report on a half yearly basis to keep you updated and informed on our work to reduce the impact of consumer harm in the investment market and the insights we are gaining from it.

Publication updates

12/07/2021: Information changed We have revised our figures on the total number of applications for authorisation from 3,885 to 4,183 and the number we stopped from 343 to 358
11/05/2021: Information changed Title of right hand menu changed to Contents