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Is the FCA doing enough to tackle unauthorised firms?


 Experts say the FCA faces an uphill struggle to combat the growing problem of unauthorised firms, as Money Marketing research suggests the current practice of publishing warnings is not acting as a deterrent. 

The FCA has published 142 unauthorised “firms to avoid” warnings on its website since the regulator was set up in April. These warn consumers about named unauthorised businesses and that they will not have access to the Financial Ombudsman Service and the Financial Services Compensation Scheme if they deal with that particular company. 

In comparison, the FSA published just 10 unauthorised firm warnings in 2012/13.

But analysis by Money Marketing shows a high proportion of the companies the FCA has flagged as unauthorised continue to operate live websites.

Of the 100 most recent unauthorised firm warnings the FCA has issued, 74 promoted their business online via company websites. Of these, 31 of the unauthorised firms still operate active websites.

Among the active websites are companies promoting pension unlocking, carbon credit trading, investment banking, portfolio management and “deposit-free” homes. There are also several clone firms of genuine financial services companies.

So should the FCA be doing more to tackle unauthorised firms than merely publishing consumer warnings on its website?

It is a criminal offence to carry out unauthorised business if the firm is not authorised or is exempt. It is also a criminal offence for an unauthorised firm to issue a final promotion. The FCA can prosecute for these offences, issue a winding-up order and can claim the proceeds back from the unauthorised firm to redistribute these to investors. 

It can also apply for injunctions to stop firms carrying out unauthorised activity and firms that do not comply are held in contempt of court.

But experts say it is impossible for the regulator to go to these lengths in every case, given the time and expense involved and the scale of the problem.

Law firm Norton Rose Fulbright financial services partner Peter Snowdon says: “Some people will be easier to prosecute than others. If an operation is being run offshore, depending on where they are it may not be that easy to get at them. There are practical difficulties with this.”

RPC regulatory partner Richard Burger, who previously worked in the FSA’s enforcement team, agrees: “It takes times to gather evidence from affected investors, then to seek an injunction.

“Case law sets a high standard of evidence to prove a breach, as ultimately a criminal sanction could be imposed. It is not that easy for the regulator to go charging off to get a restraint injunction against an individual or firm. There is no quick win here.”

The Advertising Standards Authority also plays a role in flagging rogue firms to the public, as was the case last month when it banned a pensions unlocking advert. However, it does not have the power to shut down websites. It can impose further sanctions, such as naming and shaming the firm on its website, or taking away its paid online search advertising. As a last resort, the company can be referred to the Office of Fair Trading for further action.

The ASA can impose its rulings across industry sectors where it judges there is a widespread issue based on factors such as the number of complaints and the number of similar rulings. It made a sector-wide ruling against letting agents in March, which required letting agents to disclose compulsory administration fees when advertising properties to rent.

A spokesman says: “We do work with the FCA to tackle problem advertising but we have to be pragmatic. We are here to regulate legitimate businesses. If an operator is deliberately engaged in bogus activity and is breaking the law, then there are statutory bodies who have the remit and enforcement powers to take further action.”

Compliance consultant Adam Samuel points out the kind of consumers being targeted by unauthorised firms are unlikely to be the same consumers who check a firm’s authorisation.

He says: “The sort of people that read the FCA website are not the people that need the warnings. It is Joe Public, who is not very interested in engaging with financial services, who is going to get taken for a ride here.”

Burger adds: “There is a regulatory gap here which does not cover the most vulnerable consumers, who have no knowledge of financial services and may be vulnerable because of their age, who end up being targeted by very slick firms.

“Perhaps the regulator should be working more with vulnerable consumers, such as retirees and those working with people in their later life.”

PwC partner and former FSA chief operating officer David Kenmir says: “It is a worrying area for society as a lot of financial crime these days originates via the internet. Clearly it is very easy to establish a business, real or otherwise, in a matter of hours. This is likely to a growing problem.”

Philip J Milton & Company managing director Philip Milton says: “Warnings have never been enough, they do not tackle the root of the problem.  The regulator needs to be more proactive in shutting these firms down.”

An FCA spokesman says: “We use our criminal and civil powers to take action through the courts to stop those firms and individuals who pose the greatest harm to consumers. 

“We take seriously all information we receive about unauthorised firms operating in the UK and targeting UK consumers.”


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I welcome this article by Natalie as it is a serious subject that I have been campaigning on for a number of months now and indeed have provided information to Money Marketing & FCA over a period of time.

    Just in case anybody has any doubt let’s remind people what the FCA’s first statutory objective is: PROTECT THE CONSUMER.

    Does the FCA take reports seriously well if the whistleblowing figures are anything to go by the answer that question is clearly no due to low level of investigations and prosecutions on industry reports.

    It’s been my experience that the FCA look for exemptions rather than enforcement and indeed I have letters from the FCA pointing out that many of the people operating on line without authorisation are not covered by the FSMA 2000, which is clearly wrong in my opinion and many IFA’s.

    Surely the FCA should be allocating more of its £456 million budget to clamping down on unauthorised advice and information services. Yes some of the information services may be providing valuable consumer services that there are also others that clearly have criminal connections and by enforcing authorisation standards you can at least keep a check and deregister people when they are found out to be breaking the law.

    If the mindset is that it is difficult to get a prosecution or court order surely the FCA are effectively stating that their own rule are useless. If so these rules need to be amended and brought in line with both the legislation and the on-line modern world. If business in the UK is been conducted in the UK authorisation should apply regardless of where the firm may be located.

    Until financial services has a similar enforcement to gas safe engineers we will not make progress on this subject. It is in the interest of all IFA’s to put pressure on the FCA to enforce authorisation rules both for consumer protection and to support the growth of the profession.

  2. As I have suggested elsewhere, this is more an international criminal problem than a domestic regulatory one. Why are all the legally operating firms being forced to pay for the FSA’s apparently ineffectual attempts to tackle it? I just don’t see it as something that should fall within the FSA’s remit.

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