Against a background of increasing concern about financial scams, the August 2016 newsletter of the Financial Ombudsman Service includes details of a complaint against a financial adviser. The findings can act as a reminder to us all to be vigilant.
The complaint was upheld by the Financial Ombudsman Service (FOS), and the details are a salutary lesson on how easy it is for even finance professionals to get caught out.
Ms Q received a letter from the provider of her investment bond, confirming £250,000 had been withdrawn. As she hadn’t made a withdrawal, she phoned her financial adviser, who said he’d processed the transaction after arranging it with her by email. Ms Q and the adviser established that her email account must have been hacked, so the emails the adviser had received had been coming from Ms Q’s address, but she hadn’t sent them herself. The bank account the fraudsters had given to transfer the money to, although in Ms Q’s name, wasn’t actually her account.
On investigating, the FOS saw that the fraudsters had initially provided details for a solicitor’s bank account in Hong Kong. The investment provider had told the adviser they couldn’t trace the solicitor’s firm, so they wouldn’t transfer the money to the account.
The adviser had emailed ‘Ms Q’ to let her know, and ‘Ms Q’ had replied with details of an account in her name, with a UK high street bank. In processing this second request for the funds to be withdrawn, the investment provider highlighted that the account details were different to what they had on their records for Ms Q. However the adviser confirmed the details were correct and finalised the transaction.
Ms Q said that she’d used the same financial adviser for more than ten years and always had a face-to-face meeting when she wanted to discuss her investments, so she thought the adviser shouldn’t have acted without phoning her first. The adviser said that Ms Q had been emailing them about a mortgage, and so email communication was not unexpected. They also said that they were aware that Ms Q had once worked in Asia, so were not surprised at ‘her’ request to use a Hong Kong bank account. These were assumptions that were to prove expensive.
The FOS findings were that, as a financial professional, the adviser should have been aware of the risk of fraud and scams. In their view, having received an email asking for such a large sum of money to be transferred overseas, the adviser could have realised something wasn’t right.
In addition, they thought alarm bells should certainly have started ringing when the investment provider said they couldn’t trace the firm of solicitors. They found it hard to see why, at that point, the adviser hadn’t phoned Ms Q. which would have stopped the fraud happening.
Ms Q had recovered £170,000 and was looking to her advisor to make up the difference. The adviser had only offered 25% of the £80,000 but was ordered by the FOS to pay the provider the amount needed to put Ms Q’s bond in the position it would be in if the unrecovered money hadn’t been stolen.
This case demonstrates that it pays to be constantly suspicious. New technologies have brought speed and efficiency to financial transactions, but at the same time the risk has increased that something important might get missed in the process.
The FOS report revealed that a total of £755m ($988m, €874m) was lost to financial fraud in 2015, an increase of 25% year-on-year, with 16% of scams involving bank transfers.
FOS chief executive Caroline Wayman said that financial scammers were using new technology, intended to make consumers lives easier, to try and con people. “Unfortunately, scams are a fact of daily life – and when daily life changes, scams evolve with it," she said. "In particular, new technologies – which should make life easier – inevitably come with new risks.”