EU urges social media ad checks to tackle €4.3bn scam crisis

EU member states are pressing for social media companies to vet advertisers as part of efforts to address the EUR €4.3 billion investment scam crisis in Europe.

The European Commission has been facing increasing demands, particularly from Ireland, to make social media platforms more accountable for the proliferation of investment scams that often originate from online advertisements. These developments come as the Commission considers introducing a right to automatic reimbursement from banks and payment providers to protect fraud victims within the financial services sector.

A key amendment gaining favour among member states would shift greater responsibility onto social media companies and other Big Tech platforms by mandating that they verify the legitimacy of advertisers before allowing ads to be published. Advocates for the amendment argue that it would close gaps in the current regulatory framework that allow fraudulent advertisements to reach consumers, exposing them to significant financial risk.

Jonathan Frost, Director of Global Advisory for EMEA at BioCatch, expressed support for the proposed changes and underlined the scale of harm that investment scams inflict on unsuspecting consumers. Frost stated, "The European Commission's proposed shared liability model is a step in the right direction, but the proposed amendment to require Big Tech to verify advertisers before publishing ads will truly raise the bar and increase accountability beyond the financial services sector."

Frost highlighted online platforms' role in enabling fraudsters: "Online advertising platforms often host illegal content that leads to fraud while generating significant revenues for the platform itself. Among the most damaging is investment fraud, which often leads to severe financial losses for consumers. The least we can expect of these platforms is that they promptly remove illegal content. When they fail to do so, they must be held liable for the harm caused."

Current estimates put the total cost of investment scams in Europe at EUR €4.3 billion annually. These scams are often facilitated through misleading or fraudulent advertisements distributed via major social media platforms, where checks on the legitimacy of advertising entities can be inconsistent.

The rising incidence of these scams has placed banks under growing pressure from regulators and the public to enhance their defences and safeguard customers. However, Frost emphasised that the responsibility should not rest solely with the financial services sector. He said, "Online scams are now the top concern for banks, responsible for billions of euros in yearly losses. Banks should be the last line of defence, not the only defence. The Commission is right to push for measures that tackle authorised and unauthorised push payment fraud across the entire fraud chain."

Some EU member states are reportedly advocating for rules that would make platforms directly liable for financial losses consumers suffer if they fail to prevent or remove fraudulent advertising. This would mirror some existing regulations in other sectors that hold platform operators accountable for facilitating illegal activity.

Social media firms have previously argued that while they have systems in place to identify and remove fraudulent advertisements, the volume and sophistication of scams make comprehensive prevention challenging. Critics suggest that current efforts fall short, and stronger regulatory action, such as compulsory screening of advertisers, may be necessary to protect consumers better.

The European Commission continues to consider feedback from stakeholders and member states as it finalises new obligations for social media platforms, banks, and payment providers aimed at reducing authorised and unauthorised financial fraud, including investment scams.