Investment schemes

29 October 2019

Why this risk matters

Dubious investment schemes can cause great harm to people. Despite warning notices and some high-profile cases, some firms are still involved. The victims of these schemes can lose their pensions or life savings.

Who is at risk?

Anyone with money to invest can be targeted by fraudsters. Research from a few years ago suggested that over-55s were the most likely group to be affected. The FCA has found that people over 65, with £10,000 or more in savings, were 3.5 times more likely to fall victim than the rest of the population.

However, this profile might be changing. Recent research has found that the average age of an investment fraud victim was around 40 years old, calling into question if it is just the older generation that are targeted by these scams.1

You can see this change from the types of scams that are happening. For example, investment scams targeting Instagram users recently cost consumers more than £3m, with average losses of nearly £9,000 per person. The types of products offered are changing too, with promoters offering investments in cryptocurrencies and social media scams. Unlike schemes such as fine wine investments or land banking, many of these are clearly aimed at younger people.

You are also at risk from these schemes. Your involvement could help a fraudster to legitimise a transaction. People trust solicitors. Mentioning their regulated status, and associated compensation fund protections, lends more credibility to these schemes.

What is the impact?

The scale and nature of these schemes is constantly changing. What does not change are the lasting financial and wellbeing effects these scams have on their victims.

Even if the elderly are no longer the most likely to be targeted, they still seem to be affected far worse than younger generations. These people can, and often do, lose their savings, their health and their independence because of these scams.

We recommend

To help you and your firm comply:

Know your obligations

You must not let promoters use your client account to avoid rules preventing improper movements of money. Rule 14.5 of the Accounts Rules prohibits you from allowing anyone to use your client account as a banking facility. There is no reason why money that an investor is paying to an investment scheme needs to pass through your client account.

You must make sure you do not mislead or take unfair advantage of anyone. For example:

  • do not agree to help make a scheme look as if it is a legal transaction when it is not, for example if an investment scheme uses the language of conveyancing
  • do not allow anyone to use your regulatory protections or status in promotional materials for a scheme
  • do not give anyone the impression that they are a client if they are not
  • remember that an honest investment scheme does not need a solicitor to give it credibility.

Our warning notices on investment schemes give detailed information on your obligations.

Have the right controls

The most important way to make sure you do not get involved in a dubious scheme is to carry out due diligence on any promoter who wants you to act in a transaction.

If you know the red flags of a questionable investment scheme, you will be in a better position to recognise them and avoid being involved.

It can help if you carefully analyse any complaints or contact from people who are not clients but are affected by a transaction. This may help you identify if the scheme is legitimate.

Understand your clients

Knowing how an investment client may be vulnerable will help you to protect their interests.

Find more information

The FCA’s Scam Smart page contains advice on recognising the warning signs of investment fraud.

The Money Advice Service and Action Fraud also give advice on how to spot an investment scam.

What we are doing

Regulating based on evidence

We have carried out a thematic review of cases where solicitors have been involved in questionable investment schemes.

This aimed to help us better understand the evolving nature of this risk, and how solicitors are unknowingly becoming involved.

Taking appropriate action

In the first three quarters of 2019, we began investigations into 30 cases involving questionable investment schemes, compared to 27 in the same period in 2018.

Where solicitors have become involved, we have taken action including referrals to the SDT. This has led to high fines, suspensions, and strike offs.

Helping the public

We have published guidance for the public to help them not to fall victim.

We are currently conducting research with the public. We are using this to help us understand what makes people fall for scams.

  1. DeLiema, M., Mottola, G. R., & Deevy, M. (2017). Findings from a Pilot Study to Measure Financial Fraud in the United States.