User-generated fraud included in draft Online Safety Bill

The Government announced on 11 May 2023 that user-generated fraud is now included in the draft Online Safety Bill, according to the Financial Services Compensation Scheme¹. The scheme, which pays compensation when authorised financial firms fail, had previously joined politicians, regulators and industry stakeholders in calling for financial harms to be covered, and its chief executive wrote to the Secretary of State for Digital, Culture, Media and Sport asking the Government to reconsider its decision¹. The Government had not previously planned to include financial harms in its framework for online safety¹.

The FSCS said it looks forward to hearing more about plans to use further regulation of online advertising to reduce online harms, and awaits the proposed Fraud Action Plan¹. It has also supported proposals for the new online harms regulator to work with the scheme and the Financial Conduct Authority against scams and poor online practices¹.

The announcement came alongside the scheme's account of rising online financial scams. It cited FCA data showing the regulator issued 80% more scam warnings in 2020 than in 2019, and said the FSCS is currently reporting at least one phishing attempt and one fake investment website per day¹. Research from Aviva in July 2020 found half of people targeted by scams do not report them¹. Data released by Lloyds Bank in February 2021 found one in four investment scam victims in the past year were aged over 55, losing nearly £26,000 on average¹. Action Fraud reported more than £78 million lost to brand cloning scams in 2020, an average loss of £45,242 per victim, while the FCA issued more than 1,000 scam warnings in 2020, 40% involving clones or impersonations of legitimate financial services brands¹. A March 2021 Work and Pensions Committee report said £30 million lost to pension scammers was reported to Action Fraud between 2017 and August 2020, a figure the report called "indisputably an underestimate"¹.

The FSCS describes its own role as limited, saying it has no enforcement powers¹. Its stated work includes providing direct support to consumers who contact it after being targeted, making policy proposals to Government, Parliament and regulators, reporting scams to the FCA, the National Cyber Security Centre and internet service providers, and issuing cease-and-desist letters to scammers who use its logo or fake its protection¹. It has signed a memorandum of understanding with the Serious Fraud Office to share data, insights and intelligence on matters such as pension scams and fraudulent investment schemes¹. The scheme says it is a free service and will never ask for money¹.

Why it matters for households

The change means user-generated fraud falls within the draft Online Safety Bill's scope, so platforms covered by the regime would face duties in relation to that category of fraud once the legislation takes effect. The timing of that is not set out in the announcement. The figures cited describe losses already suffered: an average of nearly £26,000 for investment scam victims over 55 in the Lloyds Bank data, and £45,242 per brand cloning victim in the Action Fraud figures¹. The FSCS notes that half of those targeted do not report scams, so the reported totals may understate the harm¹. Households affected include people searching online for investments, pensions and ISAs, who the scheme says are reached through search results, social media adverts and false price-comparison sites¹.

What happens next

The FSCS says it awaits the proposed Fraud Action Plan and further detail on regulation of online advertising¹. It has supported proposals for the new online harms regulator to work with the scheme and the FCA on blocking scam sites and adverts¹. No date has been reported for either.