Social media's pandemic: disinformation & fraud
by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting
British politicians will be exercised, post-pandemic, with mapping out a projected regulation of the internet called the Online Harms Bill – likely to expand Ofcom’s role. Will this include ‘financial harms’ to consumers?
How long is a piece of string?
The question of what harms people online feels a little like opening Pandora’s Box. Online disinformation can scam you of your money; it can also give you fake medical advice and challenge your faith in humanity. A recent poll by anti-extremist charity Hope Not Hate implies that 43% of British 25-34 year olds are paranoid, believing in a ‘secret cabal controlling global events’.
Disinformation can also leverage real scandals – which undermine trust – to manipulate people. The ‘genuine horror’ of Jeffrey Epstein’s crimes became a central focus in 2020 for unhinged Trump-fanatic cult QAnon. A pervasive attitude of distrust appeared to be reflected and fuelled in tweets and speeches by the president, who helped to stir up his supporters with a false undermining of the electoral process, which culminated in their storming of the Capitol last month.
More recently, hedge funds’ fight-off with Reddit users has shown how social media can educate and enrich ordinary people. It can also manipulate, disrupt, and undermine logical argument.
Algorithms are often oriented to monopolise your attention. Users tend to be fed more of what they engage with, sometimes fuelling outright radicalisation, or teen political recruitment. Online harms might span financially-motivated climate change denialism, Covid-19 pseudoscience and anti-vaxx ‘wellness’ tripe. Cecile Guerin, a Researcher in online disinformation, critically highlights the example of a yoga teacher who promoted QAnon to her many Instagram followers: “In a Time where facts aren’t factual & truths aren’t true, may you walk a path of your own Truth,” the woman had posted. For less harmful nonsense, you might want to check an amusing website called ‘Inspirobot’ run by an algorithm; it even has a ‘mindfulness’ channel.
‘Online Harm’ or ‘Failure to Prevent’?
With all the above forms of manipulation to contend with, would ‘online harms’ legislation go any way towards stemming a flow of criminals cloning the websites of trusted brands? The National Crime Agency also reported an increase in heart-breaking romance fraud as well as investment scams during lockdown. They suggest that creating a ‘failure to prevent’ offence for fraud could change the behaviour of a diverse range of industries – including big tech.
‘The No 1. Provider of Information’
PM tasked on ‘financial harms’
There’s a growing voice among MPs that ‘financial harms’ caused to consumers will need to be addressed, alongside some of the wider online harms I listed above.
Stephen Timms MP chairs the Pension Scams inquiry that TTF campaigned for, and raised this question directly to PM Boris Johnson last week: “It has been estimated that 40,000 people were scammed out of their pensions in the five years after the pension freedoms took effect in 2015; attractive deals on Google or Facebook turn out all too often to be a fraud.
“Will the Prime Minister ensure that the planned online harms Bill tackles online financial harms, to address this very serious problem?”
Bailey to be grilled by MPs on FCA failure to protect mini-bond consumers
Today Treasury Committee MPs will grill Andew Bailey, Governor of the Bank of England, on his former role leading the Financial Conduct Authority. MPs’ questions will be focused on the damning report by Dame Elizabeth Gloster, on the FCA’s shocking failure to clamp down on rogue firm London Capital & Finance before it caused hundreds of £millions in losses to consumers. You can watch the session here.
Lawyers for the victims believe that the LCF may have effected one of the biggest frauds on the investing public in recent years, losing approximately £237m. Adverts distributed on Facebook and Google were often investors’ first point of contact with the firm. High risk products that have since been termed “mini-bonds” were unjustifiably marketed as ISA-eligible, and pitched against other purported ISA products on popular price comparison websites.
Alleged shadow-banking & fraud beyond the FCA’s perimeter
“… give anybody a chance, they’ll stick something outside the perimeter,” Bailey wrote to Dame Gloster last year, when she was investigating this mini-bond scandal. The porousness of the FCA’s ‘regulatory perimeter’ means that regulated firms can promote unregulated products. It appears that London Capital & Finance (LCF) exploited that flexibility – or, FCA staff’s reluctance to probe outside the perimeter. One LCF victim has since described the firm’s activities scathingly to Transparency Task Force as ‘quasi-banking’ or ‘shadow-banking’ activities.
A key aspect of the scandal is that mini-bonds were marketed as ISAs. That tended to encourage vulnerable investors – who may have no other savings to speak of – to put money into the scheme.
LCF victim on the invention of mini-bonds – a ‘weapon to avoid responsibility’?
An LCF victim who writes on Twitter under the tag @LCFBondholders, recently tweeted that from victims’ perspective it’s ‘worth remembering’ that they had put savings into purported “bonds” and “ISAs” – they had not invested in anything called a ‘mini-bond’ – what LCF was touting: “The concept of a mini-bond was unheard of before the LCF collapse but it became the FCA weapon to avoid responsibility,” she wrote.
The FCA’s website states: “There is no legal definition of a ‘mini-bond’, but the term usually refers to illiquid debt securities marketed to retail investors. … The return on investors’ money depends on the success and proper running of the issuer’s business. If the business fails, investors may get nothing back”.
Dame Gloster’s report named and shamed FCA chiefs for failing to adequately protect LCF’s consumers, despite Bailey’s controversial resistance to being named. However, Megan Butler, Jonathan Davidson and Andrew Bailey had all been ‘generous’ with their time when she was investigating the scandal: “I have made this point already,” Dame Gloster told MPs, “but there was no question of any lack of integrity. I did not come across any of that in relation to any of those three people”.
Dame Gloster says Bailey’s apology did not ‘address the problem’
Mel Stride MP, chairing the Treasury committee, asked Dame Gloster to comment on Andrew Bailey’s recent apology to victims. She replied that issues Bailey inherited “did not excuse or mitigate the FCA’s overall failure to regulate LCF during the period of his guardianship … I do not think it [the apology] is enough. … It does not really address the problem, because in my view the problems that were there were not so fundamental that they could not—this comes out clearly in my report—have been fixed by specific, focused changes.”
She expanded: “My view is that it is not an adequate reason or excuse to say, “If only LCF had happened a bit later, all the changes we would have put in place would have stopped it happening.” These were defects that we did not think were in fact being picked up”.
Dame Gloster further added that Andrew Bailey was fully aware of some of the problems that fuelled the LCF scandal: “Mr Bailey absolutely recognised that there was a need for change and for culture change, both in relation to the perimeter and also in relation to the attitude to possible fraud.”
“He also appreciated that there were problems over the regulation of what was referred to as flexible firms” – regulated firms that promote unregulated products – “It is my view, or the view of our report, that these issues were not addressed and were not fixed within a reasonable timeframe.”
Press Timeline of relevant articles:
06 Feb 2021 – Fraud victims suffer enough – guarantee will help innocent overcome shame of scamming by Daniel Jones for the Sun
05 Feb 2021 – Leader: The FCA’s leaders need to step up when things go wrong by Justin Cash for MoneyMarketing
05 Feb 2021 – U.S. Consumer watchdog sees surge in Robinhood complaints, some clients claim they can’t leave the app by Kate Rooney & Yasmin Khorram for CNBC
02 Feb 2021 – SMCR rules come back to bite FCA in mini-bond probe ‘rules around senior managers being held responsible for their actions have come back to bite the regulator’, by Daniela Esnerova for MoneyMarketing
02 Feb 2021 – Regulation must deliver transparency and protection for Buy Now Pay Later consumers by Alex Marsh for City A.M.
02 Feb 2021 – Bank chief Bailey ‘should be censured’ for failings by James Hurley for the Times
02 Feb 2021 – FCA criticised for trying to omit names from LCF report by Rachel Mortimer for FT Adviser
02 Feb 2021 – Poll: Should FCA executives bear personal responsibility for the London Capital and Finance fallout? by MoneyMarketing
01 Feb 2021 – Investment funds flouting new transparency rules by Patrick Hosking for the Times
01 Feb 2021 – MPs launch full inquiry into London Capital & Finance scandal with chairman declaring it will be “thorough and clear” by Jim Armitage for the Evening Standard
30 Jan 2021 – Analysis: Robinhood and Reddit protected from lawsuits by user agreement, Congress by Tom Hals for Reuters
29 Jan 2021 – The Financial Services Bill doesn’t provide the tough regulation we need by Professor Prem Sikka for Left Foot Forward
25 Jan 2021 – FCA urges clients of collapsed British Steel firm to consider claims by Sonia Rach for MoneyMarketing
22 Jan 2021 – HSBC chiefs to face MPs’ questions over Hong Kong protesters’ frozen accounts by Poppy Wood for City AM
21 Jan 2021 – MPs call on FCA to ‘hold bad advisers to account’ by Laura Purkess for CityWire
21 Jan 2021 – FCA told it lacks vision to tackle consumer issues by Amy Austin for FT Adviser
20 Jan 2021 – Mortgage Prisoner amendments blocked by Treasury, by Suleman Baig for Quadrin Group
18 Jan 2021 – Former Hong Kong lawmaker rejects HSBC’s explanation over frozen accounts by Reuters
18 Jan 2021 – Supreme Court Rejects Appeal to Overturn UK’s First Unexplained Wealth Order by National Law Review
18 Jan 2021 – British Virgin Islands’ governor launches inquiry into alleged corruption by Patrick Wintour for the Guardian
18 Jan 2021 – What we learned from a bumper FCA data dump by Justin Cash for MoneyMarketing
18 Jan 2021 – Wall Street fears bubble from Biden stimulus as retail investing booms by Katherine Greifeld, Claire Ballentine and Vildana Hajric for Independent.ie
17 Jan 2021 – Bobby Kennedy was right: GDP is a poor measure of a nation’s health by Larry Elliott for the Guardian
15 Jan 2021 – Mortgage prisoners accuse Treasury of working against them as wider FCA remit blocked by Owain Thomas for Mortgage Solutions
14 Jan 2021 – MP Vows To Keep Pushing Tougher Economic Crime Law by Richard Crump for Law360
13 Jan 2021 – Mortgage prisoner finance bill amendments struck down by Gary Adams for Mortgage Strategy
12 Jan 2021 – Hong Kong families with money trapped in closed law firm’s frozen bank accounts turn to government for low-interest loans by for South China Morning Post
12 Jan 2021 – Bitcoin: be prepared to lose all your money, FCA warns consumers by Kalyeena Makortoff for the Guardian
11 Jan 2021 – Insolvency firms put under investigation after scandals, by Louisa Clarence-Smith for the Times
07 Jan 2021 – Regulators and police say Covid lockdowns have driven up online pension scams and demand regulation of Google, Facebook and others by Jim Armitage for the Evening Standard
06 Jan 2021 – Why UK savers could fall through the cracks in Brexit regulation from the FCA by Jim Armitage for the Evening Standard
04 Jan 2021 – Bank of England fails to publish officials’ expenses by Alex Ralph for the Times
03 Jan 2021 – Five years on and still no answers over HBOS affair by Jill Treanor and Liam Kelly for Sunday Times
31 Dec 2020 – So, when WILL we learn truth about bank chiefs? Another year and still no sign of key HBOS probe by Lucy White for the Mail
24 Dec 2020 – ASIC drops investigation into Westpac, by Investor Daily in Australia
21 Dec 2020 – Financial Conduct Authority fines just ten wrongdoers this year by Patrick Hosking in the Times
19 Dec 2020 – Andrew Bailey could return to face MPs after damning report on London Capital & Finance scandal by Ben Martin & Patrick Hosking for the Times
18 Dec 2020 – Google urged to vet online financial promotions better by Huw Jones for Reuters
18 Dec 2020 – Financial Conduct Authority insiders warned of London Capital & Finance-style minibonds in 2013 but nothing was done by Jim Armitage for the Evening Standard
18 Dec 2020 – Blue Gate escapes $13.5 million Connaught fund fine from FCA by Huw Jones for Reuters
18 Dec 2020 – Executives at Financial Conduct Authority to lose bonuses over London Capital & Finance scandal by Ben Martin for the Times – Bosses at the Financial Conduct Authority will lose £205,000 in bonuses after the highly critical report on the regulator’s handling of the London Capital & Finance scandal
17 Dec 2020 – The fallout from the financial regulator’s shocking failure on LC&F is not over yet by Nils Pratley for the Guardian
17 Dec 2020 – FCA did not ‘effectively supervise’ collapsed mini-bond issuer LCF, says report by Matthew Vincent for the Financial Times “Members of the Transparency Task Force, a lobby group pushing for regulatory reform, pointed out that in his own representations to the Gloster review, Mr Bailey included a demand “to delete references to ‘responsibility’ resting with specific identified/identifiable individuals”.
17 Dec 2020 – Former Financial Conduct Authority boss Bailey apologises over handling of mini-bond scandal by Ben Martin for the Times
16 Dec 2020 – EU cannot be ‘captured’ by City of London, warns financial services chief by Sam Fleming and Jim Brunsden for the Financial Times
16 Dec 2020 – Treasurer plots ASIC shakeout by John Kehoe for Financial Review
15 Dec 2020 – How to remake Australia’s lame corporate watchdog by Pamela Hanrahan for Financial Review
08 Dec 2020 – MPs call for £2.6bn Equitable Life compensation by Adam Williams for the Telegraph
03 Dec 2020 – HMRC ‘treat the victims of pension scams like criminals’: Taxman has benefited from the ‘proceeds of crime’ MPs are told by Tom Kelly for Daily Mail
25 Nov 2020 – FSCS seeks extra £92m in interim levy by Daniela Esnerova for MoneyMarketing
25 Nov 2020 – Trump Administration Targets Banks Divesting From Fossil Fuels In New Anti-Climate Rule by Sharon Kelly for DeSmogBlog
23 Nov 2020 – Bank of England policymaker warns of ‘pandemic hangovers’, as private sector shrinks – as it happened by Graeme Wearden for the Guardian
16 Nov 2020 – Bank of England ‘failing’ on climate change reform by Philip Aldrick for the Times
16 Nov 2020 – Fed moves closer to joining global peers in climate-change fight by Ann Saphir for Reuters
14 Nov 2020 – Fraudsters will exploit Covid vaccine to con vulnerable, warns National Crime Agency by Charles Hymas for Telegraph
09 Nov 2020 – Ombudsman inundated with complaints about loans by Katherine Griffiths for the Times
09 Nov 2020 – Spike in personal pension cases at ombudsman by Rachel Mortimer for FT Adviser
09 Nov 2020 – Regulator: Climate risk ‘looms even larger’ than pandemic by Avery Ellfeldt for ClimateWire (U.S.)
08 Nov 2020 – How financial services watchdog has reacted to UK consumer worries in Covid by Hilary Osborne for Guardian
08 Nov 2020 – Five predictions for banking regulation in a Biden presidency by Jon Hill for Law 360
05 Nov 2020 – Martin Lewis warns of ‘epidemic of scams’ after ICU nurse loses £8,000 by Scott Edwards for Wales Online
05 Nov 2020 –FCA bans adviser trio jailed for sex offences by Rachel Mortimer for FT Adviser
03 Nov 2020 – ‘We haven’t received a penny’: Business interruption insurance row intensifies as owners fear payout delays, by Elizabeth Anderson for iNews
03 Nov 2020 – Aviva’s shares fiasco highlights weakness of the city watchdog by Patrick Hosking for the Times
02 Nov 2020 – Banks have done little to help the country through the pandemic, so why is the government rewarding them? by Simon Youel for the Independent
29 Oct 2020 – Calls to sack Malta financial regulator CEO by Cristian Angeloni for International Adviser
27 Oct 2020 – U.S. group urges Biden to use financial regulation to control climate change by Valerie Volcovici for Reuters
27 Oct 2020 – ‘Impact startups’ continue to raise funding during the pandemic despite difficulties faced by the wider tech startup sector by Sebastian Klovig Skelton for Computer Weekly
26 Oct 2020 – Why there must be thorough probe of claims made by Bank Signature Forgery Campaign – Greg Wright for the Yorkshire Post
26 Oct 2020 – Critics demand action over ‘flawed’ British Banking Resolution Service by James Hurley for the Times
24 Oct 2020 – Banks look to debt collectors to recover bounce back loans by Nicholas Megaw, Stephen Morris and Daniel Thomas for the FT
23 Oct 2020 – Bank Signature Forgery (film) by Nicholas Wilson for Corruption UK
22 Oct 2020 – UK fraud agency suffers string of senior departures by Kate Beioley for the FT
22 Oct 2020 – HSBC froze £1.5bn of customers’ cash in ‘dormant accounts’ – report by Kalyeena Makortoff & Juliette Garside for the Guardian
22 Oct 2020 – Work harder to find fraud, watchdog tells auditors by James Hurley for the Times
17 Oct 2020 – MPs pursue claims bank signatures were faked on court papers by Rupert Jones for the Guardian
16 Oct 2020 – We need universal digital ad transparency now by Laura Edelson, Erika Franklin Fowler and Jason Chuang for TechCrunch
15 Oct 2020 – Rising COVID-19 Rates Send NatWest Misselling Trial To Video by Bonnie Eslinger for Law 360
15 Oct 2020 – MPs Push Agencies to Act on Forged Signature Claims by Law360
13 Oct 2020 – Mark Carney says banks should link executive pay to Paris climate goals by Kalyeena Makortoff for the Guardian
12 Oct 2020 ‘It is time to reboot the competition regime for the modern, digital age’ by David Wighton, The Times
12 Oct 2020 – Gina Miller blasts FCA complaints scheme changes ‘unfair, immoral and illegal’ by Cristian Angeloni for Portfolio Adviser
12 Oct 2020 – MPs call for input on Pension Schemes Bill by James Phillips for Professional Pensions
10 Oct 2020 – Give pension trustees power to fight scammers, say MPs by Kenza Bryan for the Times
08 Oct 2020 – Freedom to transfer pensions should be stripped where scams are suspected, industry experts urge by Jessica Beard for the Telegraph
08 Oct 2020 – Planned pensions shake-up passes first Commons hurdle by Law 360
08 Oct 2020 – WPC chairman says transfer rules ‘must be changed’ by Amy Austin for FT Adviser
07 Oct 2020 – Tech giants share blame for pension scams, MPs told by Law 360
06 Oct 2020 – FCA opens 85 cases over pension scam concerns by Amy Austin for FT Adviser
03 Oct 2020 – Record number of savers fall victim to investment fraud as scam adverts stay on Google by Andrew Ellson for The Times
02 Oct 2020 – A New Theory of Soil by Alex Varley-Winter for SustainAct
11 Sep 2020 – The Hut Group facing fresh questions over governance after it reveals one of country’s best-known private equity barons to oversee pay policy by Lucy White for the Daily Mail
10 Sep 2020 London Capital and Finance investors relieved after court ruling opens route to compensation claims by Ben Chapman for the Independent
08 Sep 2020 – Change in law needed to stop scams, says Timms, by Amy Austin for FT Adviser
05 Sep 2020 Crime Agency under fire over bank signature forgery by Andy Verity for BBC
24 Aug 2020 – Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times
04 Aug 2020 – Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions
03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money
01 Aug 2020 – ‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph
31 Jul 2020 ‘Common sense’ prevails as pension freedom withdrawals fall 17% — But drop is expected to be ‘a short-term blip’ by Robbie Lawther for International Adviser
31 Jul 2020 – HMRC figures show plunging pension freedom withdrawals by Hope William-Smith for Professional Adviser
28 Jul 2020 – MPs launch inquiry into pension scams by Tom Kelly for Daily Mail ; UK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing
24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style
21 Jul 2020 Londongrad Calling: Is Europe’s Laundromat the ‘New Normal’? by Mark Conrad
17 Jul 2020 – Year ‘dominated’ by FCA shortcomings as 205 complaints made, by Rachel Mortimer for FT Adviser
29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360
14 May 2020 – Under Rising Pressure on Climate, JP Morgan Rejects Shareholders’ Calls to Disclose Carbon Footprint by Alex Varley-WInter for DeSmog
11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser
30 Apr 2020 – FCA was warned three years ago about mini-bond firm Blackmore Bond, which collapsed with £45m of savers’ money by Ben Chapman for the Independent
15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times
25 Mar 2020 – Care Home Wants NatWest Docs in Misselling Fight by Law360
20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser
07 Jan 2020 – It’s time to keep your pensions promise, Boris! The PM pledged to help these victims of a huge scam FOUR years ago – and they’re still waiting by Tom Kelly for the Daily Mail.
29 Dec 2019 – ‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, and ‘Making millions from other people’s misery’: A Government adviser, call centre chief and pension scheme director are among those who stand accused of involvement in pension schemes that exploited loophole in the law by Tom Kelly for the Daily Mail
15 Aug 2019 – Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail
05 Aug 2019 – Plunder in paradise: The ‘adviser’ behind a Costa scam that has cost expat pensioners £25MILLION – and led one to attempt suicide by Laura Shannon for Mail on Sunday
05 Jul 2019 Government-owned bank ‘forging signatures’ in repossession cases by Andy Verity for BBC
18 Jun 2019 – “I came home to find my house had been stolen!” by Angela Ellis-Jones for the Daily Mail
20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser
13 Jun 2019 – Investigation into disgraced RBS small business unit branded a ‘whitewash’ by MPs by Ben Chapman for the Independent
07 Jun 2019 – Guernsey Stock Exchange disputes FCA account over Woodford by David Thorpe in FT Adviser
29 Mar 2019 – MPs call for inquiry into alleged forgery of signatures by Andy Verity for BBC
15 Feb 2017 – RBS accused of fraud & forgery by customers and ex-employee by Andrew Hosken for The World Tonight BBC Radio 4
22 Dec 2016 – Solicitors suspended for roles in collapsed Brazilian investment scheme by Nick Hilborne for Legal Futures
23 Sep 2016 – Which? makes scams super-complaint by Adam French for Which?
08 Aug 2016 – The Latest Bank Interest Rate Scandal Signals A Crisis Of Australian Democracy by Professor Carl Rhodes for New Matilda