Online Safety Bill will not tackle fraud in paid-for-advertising

The government has rejected the Work and Pensions Committee’s (WPC) recommendation that the forthcoming Online Safety Bill should tackle fraud facilitated through paid-for advertising.

This is despite the Financial Conduct Authority (FCA) highlighting paid-for online advertising as ”the major source of problems leading to very significant consumer harms”.

In its response to the inquiry’s report, which called for tech firms to be held more responsible, the government confirmed that the Online Safety Bill will not tackle fraud facilitated through paid-for advertising, such as adverts on search engines.

Instead, it noted that the Department for Digital, Culture, Media and Sport (DCMS) is considering how online advertising is regulated through its Online Advertising Programme, with plans for a consultation on this issue "later this year".

“This work will look at ensuring that standards about the placement and content of advertising are effectively applied and enforced online to reduce consumers’ exposure to harmful or misleading advertising,” it stated.

In addition to this, the government pointed out that the FCA is looking at the operations of major online platforms to determine whether their communication of financial promotions is subject to the financial promotion restriction and, if so, whether they are compliant.

“Where they are not, the FCA will take action to ensure consumers are protected,” it stated, emphasising that HM Treasury will support the FCA in these conversations going forward, as part of the government’s efforts to protect consumers from fraud online.

The government also confirmed that the Home Office and the DCMS continue to work with the tech sector to explore voluntary approaches to reducing fraud together, including a public-private technology sector charter.

It stated: “Such a charter might include actions aimed at tackling fraudulent adverts on search engines and social networks. We believe these actions are best situated within the context of a wider set of actions, rather than through standalone codes.”

However, parts of the government response were in "direct contrast" to the views shared by the FCA in response to the inquiry, which expressed support for the recommendation that the forthcoming Online Safety Bill should legislate against online investment fraud.

FCA executive director of enforcement and market oversight, Mark Steward, stated: “We have consistently been of the view that financial harms should be included in the Online Safety Bill to ensure that online platform operators take responsibility for the material which they disseminate which could cause consumers financial harm.

"We welcomed the government’s confirmation that certain types of user-generated online fraud will be brought within scope of the bill.

"We very much hope, however, that it can be amended to cover paid-for advertising as well as it is online advertising that is the major source of the problems leading to very significant consumer harms.

"We do not agree with the arguments made by some platforms that such a measure would undermine competitiveness of the UK technology sector as we do not consider a business model which acts as a gateway to large scale fraud against consumers constitutes a sustainable business model."

The FCA also stated that it did not believe a voluntary approach such as a charter would be sufficient to deal with the “significance and urgency” of this issue, particularly with respect to online advertising.

Alongside this, WPC Chair, Stephen Timms, has warned that "a vague promise" to consult later this year is "too little too late", emphasising that without backing words with action, the law will remain "toothless and continue to allow scammers to advertise with impunity while tech giants line their pockets from the proceeds of crime".

He continued: “Ministers claim to understand the devastating impact of illegal activity online, but by constantly failing to act against paid for adverts online they remain at odds with their own enforcement agency and totally ambivalent to what the FCA warns is a major source of harm.

“The FCA sees the damage being done to consumers by online scams day in day out. It doesn’t think it has enough powers to protect people, yet still the government cannot be cajoled into action."

Commenting in response to the concerns, a government spokesperson said: "The government is exploring all options to determine the most effective way to tackle online fraud. We are working closely with industry, regulators and consumer groups to consider additional legislative and non-legislative solutions.

“We are considering tougher regulation on online advertising to clamp down on scams and our new pension transfer regulations will build a strong, first line of defence in the fight against pension fraud.”

Indeed, the government's response confirmed that it will continue to explore options with Project Bloom members for both legislative and non-legislative options for improved intelligence sharing.

The government also agreed with the recommendation for a review of legislation to be published within 18 months of the regulations being operational, stating that this fits within the DWP’s existing plans to review the policy.

However, it clarified that it cannot guarantee that any legislative changes following a review could be made during this parliament, emphasising that this would very much depend on the nature and urgency of any changes, and the legislative timetable.

In addition to this, it supported the suggestion that the suitability of the red and amber flags should form part of the 18-month review and then be reviewed at least every 3 years thereafter.

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