Google ‘should be liable’ if savers fall for scam investment ads, watchdog says

Linda J. Dodson

Search engines and social media sites should bear “clear legal liability” for financial advertisements on their platforms, the City watchdog has said.

The Financial Conduct Authority issued a fresh warning to the likes of Google, which has been repeatedly criticised for allowing high-risk investments to be marketed to users searching for low-risk bonds and savings accounts.

It wants Google and other operators to be held liable and ensure ensure promotions have been approved by the regulator. This would help prevent investors using inappropriate investment schemes, the FCA said.

“We think that it is important that online platform operators, like Google, bear clear legal liability for the financial promotions they host,” the regulator said in its perimeter review. This annual report highlights areas where consumers may be financially harmed, but that currently fall outside the FCA’s remit.

This marks the regulator’s latest intervention in the battle against scam and high-risk investment advertisements. Last week, FCA chairman Charles Randell criticised Google for failing to protect consumers and told this newspaper at least half of the advertisements on some Google search terms were “quite clearly scams”.

The FCA said it was currently discussing with the Treasury whether it requires new powers.

The report also warned that unauthorised firms and individuals, known as introducers, were abusing exemptions in rules that allow firms to advertise to high net worth investors. Firms were using the loophole to target unsuitable investments to DIY investors.

Under current rules, those earning more than £100,000 a year or with £250,000 in assets are exempt from some protections, as are those investors defined as “sophisticated.”

However, the regulator also warned that the definition of high net worth has not changed for two decades, meaning too many people were exempt.

The definition of a sophisticated investor is also open to abuse. There are exemptions for investors who have put money into an unlisted company. However, the rise of crowdfunding and peer-to-peer investing means a large numbers of people now meet this threshold.

The watchdog said it was also aware of several cases where investors were coached into passing such tests by unscrupulous firms. 

“We act when we find evidence of this, but this is inherently difficult for us to police and it often involves individuals who aren’t authorised by us and prove difficult to trace or are based overseas,” the report said.

Elsewhere, the FCA expressed doubts that recent rules intended to help so-called “mortgage prisoners” would be as effective as anticipated.

These are homeowners whose mortgages were sold to third parties that charge high interest rates. They are unable to move because they cannot pass mortgage affordability tests introduced after the financial crisis.

The regulator recently changed its rules to allow banks to use a lesser affordability assessment when dealing with mortgage prisoners. However, the FCA said the coronavirus crisis meant that few mortgage lenders were willing to take on these customers.

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