The City watchdog has vowed to use new post-Brexit powers to take legal action against tech titans such as Google in a crackdown on online fraud.
The Financial Conduct Authority (FCA) warned major internet companies to block scam ads following a surge in cases during the Covid crisis.
Bosses at the regulator said that they will not hesitate to pursue companies which fail to take rapid action bringing them in line with stricter rules made possible by Britain’s departure from the European Union.
Mark Steward, director of enforcement and market oversight at the FCA, said: “That is the issue that is squarely before social media right now: can they comply with this provision or not?”
Speaking to MPs on the Treasury Committee, he added: “If they can’t comply, we’re going to have to do something about it in a more formal way.”
In the FCA’s strongest warning to Google and social media giants yet, Mr Steward later confirmed to the backbencher group that this would mean legal action.
Many social media companies and search engines are used by investment companies to advertise their services – with minimal checks to determine if the product advertised is a scam.
.Financial promotions, such as advertising an investment product, can only be issued by FCA-approved firms under the Financial Services and Markets Act.
However, while Britain was in the European Union, a loophole meant that these rules did not apply to many foreign tech companies. This changed when Brexit happened, giving the FCA new freedom to take action.
It comes amid a jump in recorded investment scams as fraudsters cashed in on confusion during lockdown.
The FCA issued 1,200 warnings over online scams in 2020 – double the figure for the previous year – and cases have continued to grow rapidly in 2021. Regulators believe that fraudsters have taken advantage of lax safeguards and home-bound Britons spending more time online during the pandemic.
Mr Steward said: “This is something that Google could have recognised at the gateway before allowing that ad to appear on searches.
“But it didn’t have any mechanism for identifying what is a financial promotion that requires this.”
He added the social media giants had been made aware of the changes in the law since Brexit because it was not immediately clear they had understood the implications.
The FCA spent almost £600,000 on Google ads last year warning users of online scams, causing outcry that the search engine also profits from the fraudsters which regulators were targeting. Mr Steward confirmed that the FCA has held discussions with Google about getting back money spent on the ads.
MPs have urged the Government to boost powers to police online scams amid fears from consumer groups that rogue investment firms are allowed to “run riot” on search engines.
The Work and Pensions Committee has said tech companies must be held responsible for online scams on their platform, while some lawmakers want to use the Online Safety Bill to beef up powers on online financial scams.
Mr Steward said he is concerned about the scope of what is currently included in the bill announced at the Queen’s Speech.
He said: “It does look as though some content that is actually at the heart of the problem that we’re trying to address would not be covered.
“There is no mechanism for social media to be legally obligated to do some very basic things that don’t happen now.”
A spokesman for Google said: “Protecting consumers and legitimate businesses operating in the financial sector is a priority for us.
“We have been working in consultation with the FCA for over a year to implement new measures and we are developing further restrictions to financial services advertising to tackle the scale of this issue.
“To help protect people from financial fraud in the UK, we have pledged $5m in advertising credits to support public awareness campaigns.”
