Earlier this week, the UK’s financial watchdog, the Financial Conduct Authority (FCA), issued a stark warning about the dangers of investment scams being promoted across Facebook, Twitter and Instagram.
It published examples of the kinds of posts that appear on these social media sites depicting luxury cars, piles of money and expensive watches – all suggesting the kind of lavish lifestyle you could lead if you invest in get-rich-quick schemes trading in foreign exchange, binary options, contracts for difference and cryptocurrencies.
Influencers on these channels – companies or individuals with huge followings – have an increasingly powerful sway on young people’s lifestyle choices. And it seems that social media scams are to the young what cold-calling is to older victims.
Indeed, the FCA states that “as people have become more sceptical of investment-related cold calls and consumer habits have changed, we have seen investment fraud moving online and to social media”.
It’s been found that those under the age of 25 are six times more likely to trust an investment offer made via social media than those over 55, and that they were significantly more likely to fall for a binary options investment scam.
Binary options scams, which I wrote about in these pages a few weeks ago, allow you to make a bet on the expected value of a stock, commodity, currency or market index. You make a binary choice – it will either go up or down, and can bet over a very short timeframe, say a couple of minutes. Which? has dubbed this investment “Britain’s biggest investment con”, discovering through our investigations that prices are routinely distorted by binary options brokers and investors get tied in with extreme pay-out clauses, have their account closed and face refusals when they ask for their money back.
In 2017, Action Fraud said that £87,410 per day was being lost to this kind of scam.
The FCA warned: “While their [binary options traders’] websites and profiles appear to be professional, they are all too often run by fraudsters who fix prices and pay-outs, or in some instances don’t really place trades at all, before disappearing with innocent investors’ money.”
Binary options have been on the regulator’s radar for some time now, and since the beginning of the year, they became a “regulated product”. This means that UK firms must be authorised by the FCA, and are subject to the stringent rules that financial firms have to follow in order to offer products and services to British consumers.
This adds layers of consumer protection – such as access to the Financial Ombudsman Service if you have a dispute and to the Financial Services Compensation Scheme should the worst happen and the firm you deal with goes bust.
But deal with a firm that doesn’t have the FCA’s stamp of approval – like the ones advertising across social media sites – and you lose all of these vital protections.
Helpfully, the FCA has published a watch list on its websites of all the unauthorised firms offering binary options to people. Alarmingly, there are 94 of them.
The FCA recommends checking its Financial Services Register to see if a firm is actually authorised, to seek impartial advice before investing and to reject any unsolicited investment offers, no matter how you’re contacted – on the phone, online or on social media.
The watchdog is trying to get on the front foot with these dirty tricks but they can’t do it alone – social media sites are going to have to step up and find better ways to protect their users from these types of scams.
There are some encouraging signs that they are paying attention.
This week, Facebook took the unique step of banning all adverts for cryptocurrencies – Bitcoin, Litecoin, Ethereum, Ripple etc – adding them to their list of prohibited content. The ban will not just apply to Facebook either. Instagram (which is Facebook-owned) and other websites that are part of Facebook’s network will also stop showing adverts for these products.
Facebook said that adverts for cryptocurrencies are often associated with “misleading or deceptive promotional practices”.
It’s a good start, but much more is going to need to be done to protect people from scams in the Wild West of the social media world. If the number of people falling for Bitcoin and binary options scams begins to drop, you can bet fraudsters are already working up their next dodgy scheme.
Gareth Shaw is head of Which? Money Online