UK proposes new powers to fight soaring financial fraud

New laws to tackle soaring levels of financial fraud have been proposed in the UK government’s draft online safety bill, threatening social media sites and dating apps with huge fines unless they do more to protect people from losing life-changing sums of money.

In draft legislation published on Wednesday, ministers outlined plans to clamp down on investment fraud and romance scams, even though these were not originally expected to fall under the scope of the bill.

Ofcom, the media regulator, would be given the power to fine companies up to £18m or 10 per cent of their annual global turnover — whichever is the greater — if they fail in their duty of care, and would have the power to block access to sites.

Under the proposals, social media sites, websites and apps that host “user-generated content” or allow people to talk to others online would be required to “remove and limit the spread of illegal and harmful content”.

This would include investment scams and fake dating profiles designed to lure victims into parting with money, as well as content related to child sexual abuse, terrorist material and racist abuse.

Social media companies would be forced to take greater responsibility for tackling fraudulent user-generated content on their platforms, the government said, including “romance scams and fake investment opportunities posted by users on Facebook groups or sent via Snapchat”.

A new criminal offence for senior managers who fail to comply with Ofcom’s requests for information “could be introduced at a later date if tech firms don’t step up their efforts to improve safety”, the government said.

UK Finance, the banking trade body, had lobbied for financial scams to be included within the scope of the bill, arguing that online platforms should do more to help limit the sums lost.

Reports of romance fraud increased by 38 per cent in 2020, according to UK Finance, as criminals used fake dating profiles to lure victims into parting with money. Over £21m was lost to scammers, a 17 per cent year-on-year increase, with the average loss per victim topping £7,000.

More than £135m was lost to investment fraud, a 42 per cent increase on the previous year. However, not all scams will fall under the scope of the new bill, which focuses on harm committed through user-generated content, excluding fraud carried out via cloned websites, fake advertising or email scams.

“Ruthless criminals who defraud millions of people and sick individuals who exploit the most vulnerable in our society cannot be allowed to operate unimpeded, and we are unapologetic in going after them,” said Priti Patel, home secretary.

“It’s time for tech companies to be held to account and to protect the British people from harm. If they fail to do so, they will face penalties.”

The draft bill will be scrutinised by a joint committee of MPs before a final version is formally introduced to Parliament.

More stringent policing of user-generated content is expected to provoke a backlash from tech companies, as it would require them to overhaul existing policies and procedures, as well as spending much more time and money on content moderation.

“This long-awaited bill is every bit as radical as was promised, going well beyond what the European Commission intends to regulate through the EU Digital Services Act,” said Ashley Hurst, a tech and media lawyer at law firm Osborne Clarke.

“By extending the bill to cover user-generated online scams such as romance fraud, the government has opened up a seismic can of worms that will see very lively debate once it eventually reaches Parliament, particularly given the massive 10 per cent of turnover fines at stake.”