Social Media Companies to be Held to Account for Financial Fraud

Social media platforms could be fined 10% of their turnover for failing to control the content on their site.

Credit:  dole777 on Unsplash & Bywire News
Credit: dole777 on Unsplash & Bywire News
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LONDON (Within the Law) - When Jonathan Reubin started following Gurvin Singh on Instagram, he thought he’d found an exciting new investment scheme. In a series of posts in which he posed in front of a gold Maserati, Singh claimed to have made millions trading Forex. Unfortunately for Reubin, Singh is now being investigated for financial fraud. He, along with other Singh customers, lost tens of thousands which may not be recoverable.

Cases such as this are increasingly common. Throughout the pandemic, social media has become the vehicle of choice for investment scams, romance fraud and other criminal activity. Romance fraud increased by 38 percent during 2020 while social media investment fraud spiked by 42 percent, according to the Financial Times.

The growing threat is why the trade body UK Finance lobbied so hard to have fraud included in the new online safety bill currently under discussion in parliament. The legislation was initially expected to focus on harmful online content such as abuse and racism. However, the inclusion of fraud suggests this bill will have a much wider scope than first thought.

Under the proposals, social media platforms would be required to remove or limit the spread of user-generated content which could cause harm, abuse or racism. Those who do not comply could be liable to fines of £18m or 10 percent of their turnover, whichever is greater. The rules would be overseen by Ofcom who would have the power to block access to these sites.

The rules may also be extended if tech companies fail to take sufficient steps to improve their operations. A possible criminal offense could be introduced for senior managers who fail to comply with Ofcom’s requests for information.

The inclusion of fraud in the legislation recognises how quickly cybercrime has grown during the pandemic. Some of the most common types include:

  • Romance fraud where users create fake dating profiles and attempt to con targets out of cash.
  • Investment scams offering innovative financial schemes designed to offer quick rewards.
  • Retail scams with e-commerce sites offering popular products at apparently bargain prices.

These scams shot up in 2020 benefitting from increased use of social media and people experiencing social and financial pressures. Those suffering from isolation make easier targets for romance scams, while people seeking alternative ways to make money are ready fodder for investment scammers.

A welcome move

The fact that it has been included has been broadly welcomed, but it may provoke robust opposition from the tech companies involved. They have earned plenty of revenue over the years from advertisements for fake scams, as well as other content designed to spread racism and disinformation.

Complying with these regulations would represent a considerable cost and upheaval. The potential for a 10% hit to their turnover will also concentrate minds and adds to their existing concerns about the possible impact of GDPR. Facebook, for example, has set aside $366m for expected GDPR fines.

The legislation will be placed under scrutiny by MPs before being put to parliament for a vote. While there will be plenty of debate about the details of the legislation and its scope, it does broadly represent a serious and radical attempt to make social media companies more accountable for the content they host.

(Written by Tom Cropper, edited by Klaudia Fior)

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