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The ongoing fight against scams

Scam prevention and reporting is complicated for FSCS due to the limits of our remit. Sarah Marin, FSCS Chief Customer Officer, talks about the challenges we face in this area, how we see scams in a broader sense, and why we’re keen to continue collaborating with others in the industry on scam prevention in 2022.

Have you ever been the victim of a financial scam? If so, did you get your money back? Do you do anything differently with your money having been through that experience?

If your answer to my first question is no, you probably know someone who has been scammed. Unfortunately, financial scams are undeniably on the rise: Stop Scams UK report that criminals stole £753.9 million through fraud and scams in the first half of 2021 alone - an increase of 30% compared to 2020. If that doesn't illustrate how bad the problem is, according to recent FSCS pensions and investments research, 26% of respondents said they had been victim of a financial scam. That's just over 1 in 4 people - a shocking stat.

As a key priority within our Prevent strategy, scams is an important focus for FSCS - but our work on scams can be challenging due to the limits of our remit.

Why we can't pay compensation for scams

Once someone has been scammed, it can be very difficult to get their money back. One of the biggest challenges that we face in this space is that when investors entrust their money to a scammer, we can’t pay them compensation. This is because our rules don't allow us to pay compensation if a consumer hasn't received advice or assistance from an individual or firm regulated by the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA), so the victims of these scams are often left financially devastated - and we're unable to help them.

I saw an example of this recently. My father’s email account was targeted and hacked to scam people into buying Google Play vouchers. The scammer claimed that they were presents, and that he was in a difficult financial situation – but unable to speak to people via phone, only email. Hundreds of people were targeted, and unfortunately one person fell foul to the scammer. Due to the nature of the purchase, there was no way to cancel it and their money was lost.

Sarah Marin, FSCS Chief Customer Officer
Sarah Marin, FSCS Chief Customer Officer

There is one area that we may be able to pay compensation for in relation to scams, which is for bad advice people were given to invest in scam investments. The adviser you used would need to be FCA or PRA authorised for us to be able to help, although even if this is the case, we can’t guarantee you’d be eligible for compensation. As with all our claims, we have to look at each individual case to assess each person’s eligibility.

Scams reporting

We currently report at least one phishing attempt or fake investment website per day - but wider reporting of scams can be tricky for us. For example, despite seeing an increase in other types of scams during Covid-19, we haven't observed a rise in FSCS-related scams. We believe this is in part because customers will reach out to other bodies such as Action Fraud, the FCA or the police instead of reporting the scam to FSCS directly. There are many different parties you can report a scam to, which we know can be confusing - but we will always signpost you to the right place to go if you do come to us.

We think this could also be due to the delay between consumer harm occurring and customers deciding to submit a claim with FSCS - on average, this lag is between five and 10 years. This often occurs because customers might not have realised, they were in circumstances in which they could claim compensation (for example they didn't realise the advice they received was bad or that a provider had gone out of business) until much later down the line. Although we can't process claims for scams, if we apply this logic to scam reporting, this delay means we may not yet be seeing the full picture of FSCS related scams occurring today because customers haven't come forward to us about them yet.

Common scams we see

One trend we have seen during the pandemic is a rise in scams that use Covid-19 itself as a means of duping people out of their money. These scams cover a range of products including pensions, insurance policies and investments, often with promises to 'beat the pandemic'.

More recently we've seen postal scams taking advantage of people being at home more, as well as scammers offering fake Covid-19 tests and immunity certificates. We expect that scammers will continue to adapt their approaches as the state of the pandemic changes, so we must be prepared and vigilant towards new approaches and tactics.

Outside of the pandemic, some of the most common scams we see include:

  • Fake investment offers, products and websites claiming to be FSCS protected or using our logo without permission.
  • Websites and offers using the phrase 'FSCS-regulated' - we do not regulate products, so this is a tell-tale sign of a scam.
  • Impersonation of FSCS (including FSCS personnel such as the Chief Executive) via email, phone or social media asking for money to be transferred. FSCS is free to customers and we will never ask you to send us money.
  • False advertisements offering bonds on search engines promising interest rates drastically higher than the market average. These ads often say 'Capital Protected By FSCS' which is also false.
  • We often see scams related to big investment firm failures. A recent example is with the failure of London Capital & Finance (LCF). Bondholders have reported scam emails, letters and cold calls that claim to be from a director of LCF. These scams encourage bondholders to ‘lodge a claim into the government scheme’, ‘claim your personal settlement’ and other similar phrases in an attempt to scam them out of money.

Poor customer practice - a scam grey area

At FSCS, we also see scams in a broader, non-traditional sense - for example, when an investor is led to believe that an investment opportunity is very different to the reality. In these scenarios, individuals will purposefully promote high-risk investments to customers who are clearly not suitable for them. These customers are often attracted by the prospect of quick, high return offers that will significantly grow their pension, without being warned of the incredibly high risks associated with them - like the possibility of losing their entire life savings.

Sometimes customers will also find that their money has not been invested where the individual promised it would be, or that a scammer has taken their money instead of investing it. One of the most common products we see this occur with is self-invested personal pensions (SIPPs). A SIPP is essentially a pension plan that acts as a 'wrapper' for multiple investments, and they can be tempting for people because they can sometimes offer high returns. However, they are often very high-risk and therefore often only suitable for more sophisticated investors.

Something that really sums up why this isn't a suitable investment product for many people is another stat from our pensions and investments research: under 44% of respondents who have a pension said they don't actually know what SIPP stands for.

In recent years we are seeing more and more cases of people receiving bad advice to switch their pension plan - without taking into account the individual's risk profile, understanding and preferences. This leaves customers exposed to high risks that they simply shouldn't have been exposed to in the first place.

The investment products involved in a SIPP - ranging from overseas property to wine or renewable energies - are often hard to sell or exchange for cash, extremely volatile, and each product can incur its own individual fees. This can make a SIPP costly to run, and if the investments are not performing well, this can eat away at your pension pot without you realising. The SIPP also requires you to self-manage your investments, something that many customers who are being recommended them are not financially equipped to do. In some cases, we have seen SIPP customers lose their entire pension pot due to their investments becoming worthless without them being aware until years later - sometimes because the investments they were led to believe they had made were in fact something else entirely.

This isn't to say that all SIPP offers are scams, but the inappropriate advice and mis-direction customers often receive shows how blurred the line can be between poor advice and scams.

How we're fighting scams

Although we can't pay compensation to victims of scams, we are committed to doing everything we can to fight them and help improve industry practice too. Here are some examples of our most recent scam prevention work:

  • We provide direct support to consumers who contact us after being targeted by a scam. For example, if the scammer is posing as someone from FSCS, we can quickly tell the customer to ignore contact. If it’s a known scam, we will signpost them to the website. For scams we haven’t seen before, we spend time reviewing any correspondence or documents the victim can provide to help assess whether they are legitimate or not.
  • Working closely with the FCA on combatting phoenixing has led to us identifying and reporting more than 120 cases. Our work has led to new rules being proposed to ban claims management companies from managing FSCS claims where they have a relevant connection to the claim, which will allow more action to be taken.
  • Reporting of scams to enforcement agencies such as the FCA, National Cyber Security Centre, Action Fraud and internet providers.
  • Last year we led the way in attempting to improve fraud and scam enforcement by responding to a consultation on the Online Safety Bill to call for financial harm to be included. We also supported proposals for a new online harms regulator to work collaboratively with us and the FCA against scams.
  • We issue cease and desist letters to scammers who falsely use our logo or protection.

What you can do to avoid scams

The FCA's ScamSmart website has tips and guidance on how to protect yourself from financial scams. Our scams page is also regularly updated with the latest FSCS scams we are seeing.

Before you go ahead with a financial offer, it's always important to remember that if you use an unauthorised firm or individual, you won’t have access to the Financial Ombudsman Service or FSCS if things go wrong – and you’re unlikely to get your money back.