The Financial Conduct Authority (FCA) chair has warned that online platforms should expect heavier regulation in future during his speech to the Cambridge International Symposium on Economic Crime.
Charles Randell argued that the internet had been filled with “problematic content” and said the City watchdog could not “allow online business to operate in ways we wouldn’t tolerate with any other business”. This included rules that protect people from investment fraud and scams, he said, which has been on the rise in recent years.
Indeed, more than 31,000 online scams were logged in Action Fraud’s Cybe Crime Trends report for 2020/2021, totalling a loss of £9.6m. This was almost double the £5.4m lost in the previous report, and around 4,000 more cases.
“When I last spoke at this symposium in 2019, I said that online platforms, including the search and social media giants, needed to step up and stop publishing and profiting from fraudulent content,” said Randell. Although some were protecting consumers, others were “destroying the trust of their users”, he noted.
Since then, here had been some progress, including the UK government bringing financial scams into its proposed legislation about online harms, but Randell warned that paid-for advertising, the main source of online investment scams, was still not covered.
This comes after Kim Kardashian was paid to post an ad asking her 250 million Instagram followers to join the “Ethereum Max Community”. Not to be confused with Ethereum, the more recognised cryptocurrency, this is a “speculative digital token” created a month before the post with unknown developers, he said.
“Of course, I can’t say whether this particular token is a scam. But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation. Some influencers promote coins that turn out simply not to exist at all,” he said.
“There are no assets or real world cashflows underpinning the price of speculative digital tokens, even the better known ones like Bitcoin, and many cannot even boast a scarcity value. These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”
The FCA estimated that around 2.3m UK investors own cryptocurrency tokens, with more than 1 in 10 of them believing they would be covered by the Financial Services Compensation Scheme if things went wrong: they would not. Around 14% of these have taken out debt to buy into crypto.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The watchdog is clearly horrified at the lack of controls implemented by major social media platforms and has urged them to crackdown on posts that aren’t clearly identified as promotions. It reckons, given the seriousness of the situation, legislation forcing them to do so should be the solution, highlighting that the current online harms bill just won’t go far enough.”
The latest crusade against cryptocurrency follows on from efforts made towards the end of last year, when the City watchdog banned the use of derivatives to track the price of cryptoassets.
A Treasury consultation on the UK approach to cryptoassets and stablecoins closed earlier this year, while influential group the Basel Committee, which brings together regulators from around the world, is also tackling the issue.
Its current proposals suggest that if banks and other regulated financial institutions dabble in crypto, they may have to put aside enough capital to cover 100% of the potential losses, making trading these assets extremely costly.