In a statement on 4 September the watchdog said by comparison in the same period in 2023/24 there were 6,094 fraud and scam complaints, as reported last year.

The rise in cases was due to a number of factors including increasing numbers of multi-stage frauds which can see consumers put in multiple claims due to the number of firms involved, a growth in people inadvertently using their credit or debit cards to pay fraudsters, and more online fraud cases being brought by professional representatives.

Abby Thomas, chief executive and chief ombudsman of the Financial Ombudsman Service, said: “Being a victim of a fraud and scam is a horrendous experience – not just financially, but emotionally too. That’s why it’s disappointing to see complaint levels rising to even higher levels.

“We often hear from people embarrassed to have fallen victim to a fraud, but these crimes can be complex and incredibly convincing, and nobody should be afraid to come forward.

“In recent years, we have investigated thousands of cases, returning more than £150m to those who have fallen victim to these crimes.

“No matter how complex a case is, people can come with confidence to our free, independent service and we’ll investigate their complaint.”

Many financial providers have now signed up to the voluntary Contingent Reimbursement Model (CRM) code which provides additional protection for consumers, and means they are reimbursed unless there are exceptional circumstances. If a bank has not signed up, consumers can have less recourse for reimbursement.

Whether a bank has signed up to the CRM code or not can affect the outcome of a consumer’s case. Of the 4,752 APP scam cases received in the first three months of this financial year, 2,734 were not covered by the code. This is reflected in the uphold rate – with 49% of cases that fall under the code upheld, compared to 36% that do not.

Pat Hurley, Ombudsman director for Banking, said: “Fraudsters’ methods are always evolving, and we continue to see that reflected in the complaints brought to our service.

“We are currently receiving – and resolving – around 500 fraud and scam complaints a week. In all the cases we receive, we’ll look at the individual circumstances and investigate whether a business did everything it was required to do.

“When we do uphold complaints, we expect firms to learn from our findings and apply them to any future interactions with their customers.

“Our service is free, easy to use and impartial.”

The introduction of new upcoming rules should also speed up the time it takes to be reimbursed. These reimbursement rules, which will apply to all firms, are being brought in by the Payment Systems Regulator (PSR) and put the onus on financial providers to reimburse customers who are victims of scams unless the customer has been grossly negligent.

The new reimbursement rules cover many APP scams up to £415,000 with some exceptions – such as the payment being made abroad.

Data also indicates that we have seen a significant rise in complaints where people spot investment opportunities on social media and then inadvertently pay fraudsters using their debit or credit cards. Where this happens, the consumer can have less protection because card payments, unlike bank transfers, are not covered by the CRM code or the new PSR rules.

There were 1,500 complaints from people who used their cards to pay for investments, which turned out to be scams, compared to around 1,100 complaints in the first three months of the last financial year.

We are also seeing more cases of multi-stage fraud where funds pass through several banks before reaching the fraudster.

This is particularly prevalent in cryptocurrency investment scams as well as ‘safe account’ scams – where people are cold called by fraudsters posing as a trusted entity, such as their bank, and persuaded to transfer money to another account.

Although banks have improved their fraud detection methods, the uphold rate continues to be higher than average, with us upholding 44% of fraud and scam complaints in the last quarter, compared to the average rate of 37% across all products and complaints issues.

There are ways in which people can avoid falling victim to a fraud the ombudsman said:

A bank or other official body, such as the police, will never call consumers and ask them to move their money to a ‘safe account’. Hang up the phone and contact your bank if this happens.

It’s rare that people will be asked to part with money as part of an employment opportunity. If people are asked to do this, it’s likely to be a scam.

Consumers should do their research if they plan on investing, particularly in investments found on social media. They should ensure that the provider is regulated by the Financial Conduct Authority and do their own due diligence. Otherwise they may lose all their money if it turns out to be a scam.

In its response to the FOS Consultation ‘Charging Claims Management Companies and other Professional Representatives’, PIMFA argues that whilst the decision to levy a fee to CMCs is welcome, it will not achieve the policy objectives set out by the government when this power was given to the FOS.

PIMFA argues that a case fee of £250 for CMCs and Professional Representatives does not act as a disincentive to bring forward targeted block cases against firms that have little chance of success.

In its response, PIMFA suggests that FOS should review its approach and seek to levy a higher charge, which would result in firms and CMCs sharing the burden of case fees. Assuming a case fee of £900 as outlined in the consultation proposals (£250 case fee for the CMC and £650 for the respondent firm), PIMFA suggests a 50-50 split between both parties, meaning that respondent firms would be required to pay £450 as would CMCs and professional representatives.

PIMFA believes that in doing so, the FOS can put forward a framework which is more equitable for respondent firms whilst also recognising the limited role that CMCs play in advancing cases on behalf of consumers.

PIMFA is unconvinced that raising case fees for CMCs would result in consumer detriment, given that there is little evidence that the use of a CMC results in a demonstrably better outcome for consumers. It would also point to the presence of a fee cap for CMCs regulated by the FCA as evidence that the case fee would not be passed on to the end consumer. In considering this point, PIMFA would also urge the Solicitors Regulation Authority (SRA) to accelerate its plans to adopt a regulatory framework for CMCs which mirrors the FCA.

Simon Harrington, head of Public Affairs at PIMFA, said: “We would never advocate for the FOS to be anything other than free of use for consumers. It plays a valuable part in the financial services ecosystem, and we will always defend the right of consumers to access it.”

“In accepting the principle that the FOS is and should always remain free to access for consumers, we find ourselves questioning why it is that CMCs should be able to insert themselves into a process for their economic benefit where there is little evidence to suggest that their presence is in any way contributory towards consumers receiving a good outcome.”

“Whilst we are pleased to see that the FOS has accepted the principle that CMCs and professional representatives should be required to contribute towards case fees which they bring forward, we strongly believe that the FOS should review its proposals in order to set out a more equitable settlement between CMCs and respondent firms.”

“The FOS has a unique opportunity here to be bold and address the economic imbalance which currently exists between CMCs and the financial services sector. In doing so, the FOS can set out a framework which is equitable for firms and recognises the roles of both parties as ‘customers’ of the FOS.”

Retail investors have statutory protections allowing them to seek compensation in certain cases via the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) under The Financial Services and Markets Act 2000.

However, under Link’s Scheme of Arrangement for investors affected by the collapse of the Woodford Equity Income fund (Weif), FSCS protections would be removed, though the scheme does not prevent creditors from bringing claims against a third party.

See also: Woodford investors granted single vote on Link redress scheme

The claims come ahead of the announcement of the High Court’s decision on whether to sanction the scheme of arrangement, expected to be published in early February.

Link’s compensation scheme has been approved by 93.7% by number and 96% by value of the 54,000-strong scheme creditors at a scheme meeting in December. The scheme is currently awaiting High Court approval before payments can be distributed to those affected.

Finance academics professor Steve Keen, professor Markus Krebsz, professor Andrew Clare, professor David Llewelyn and Dr Andy Schmulow penned an open letter to Justice Richards on 16 January highlighting the issue they see as a dangerous precedent.

They said: “We have no wish to become involved in Link or the merits of its proposed scheme. However, we are concerned the proposed scheme in its current form, if sanctioned, would forcibly denude affected investors of their statutory protections. This would occur many years after they had relied on boilerplate statements asserting the existence of those protections whilst making their investment decisions in good faith.

“Such a ruling, akin in effect to a removal of statutory projections under FSMA for approximately 300,000 retail investors, would be likely to set a dangerous precedent for the UK financial services market at large, thereby constituting a public interest case.

“In addition, sanctioning the above scheme could have grave, unintended consequences of increasing market volatility, diluting market participants’ trust and tarnishing the reputation of the UK financial services industry.”

Implications for wealth managers and IFAs

Transparency Task Force head of strategy Mark Bishop believes that waiving retail investors’ FSCS protections could have an adverse impact on wealth managers and independent financial advisers.

He told our sister publication Portfolio Adviser that any decision which strips investors of their statutory rights to seek compensation through FOS and FSCS could see firms effectively copying the process in the future, settling through a scheme of arrangement rather than the FSCS levy footing the bill.

“It effectively changes the game quite significantly in terms of what we understand about consumer protections in UK financial services,” he said. “If the scheme of arrangement is sanctioned by the court, it will set a precedent that means that other firms in the industry can go down the same route.

“In the medium term, it’s catastrophic for the industry. If the scheme of arrangement is passed, I would think that it would be incumbent on IFAs to write to people and say we put you into those funds because we said that they were FSCS protected. Those protections can no longer be relied upon, and you might want to consider reallocating your capital – a huge amount of work for no money.

See also: Chinese property sector woes continue to weigh on fund performance in January

“Secondly, for wealth managers, the position is even worse because they’ve made decisions for their clients and those decisions are going to look retrospectively dodgy. Of course, if those decisions included putting people into the Woodford Equity Income Fund, then actually the clients could come back to them and says, ‘You never told me that I can be deprived of my positive FSCS and FOS rights’.

“That would be a significant problem. There is a bigger problem as well for the industry as a whole, which is that if ever people are deprived of the statutory rights, they will tend to behave differently in the future. As a result, the Woodford Equity Income Fund had 300,000 direct investors that were trapped in it where it was gated, and another 240,000 who were invested in funds that invested in it. So 540,000 people were affected, and will be deprived of redress that they thought they were going to get.

“They’re going to tell their friends and at that point, there is a large number of people who are in the target market for financial advice, wealth management, and retail investment products, who now believe it’s safer to keep their money tied up in the family home or in a buy-to-let, or in deposit accounts and therefore don’t want to trade with the industry. That is very damaging if you are an industry participant.”

FCA’s alleged failures

The Transparency Task Force has been vocal throughout the Woodford saga on alleged failures by the FCA during the compensation process.

The group argues that the FCA is “desperate” to have the Woodford redress scheme approved, in order to protect the FSCS levy, following previous involvements with Link and its predecessor Capita Financial Managers in the handling of redress for investors in CF Arch Cru Investment and Diversified funds and Connaught Income Fund Series 1.

Bishop said: “We believe that the FCA, in 2017, placed itself in a position that resulted in it having to turn a blind eye to LFSL’s failings in its conduct as ACD of the Woodford Fund, in order to secure redress for Connaught investors that it hoped would take the reputational and political pressure off itself. And in doing so, as happened when it allowed the same firm to get away with no regulatory sanction for Arch Cru and Connaught, it simply caused a firm that was known to be defective to incur a still larger liability, further down the line.

“It is the apportionment of that loss that the Scheme of Arrangement seeks to deal with; it seeks to unfairly, irresponsibly, incorrectly and we argue unlawfully apportion that loss to the investors, and not where it should be – on the FSCS, and thereby, on the industry.”

He added: “It is therefore our hypothesis that the FCA was desperate to get the Scheme of Arrangement passed in order to avoid that liability falling to the FSCS, which would cause the industry – and especially the investment management sector – to ask difficult questions about how LFSL was able to buy its way out of regulatory sanction for Arch Cru and Connaught, and to be foisted on Woodford Investment Management; let alone the wider questions about how two individuals with colourful histories well known in the sector were able to achieve accelerated authorisation, or be authorised at all given their past conduct, and with minimal governance to keep them in check.”

The FCA was contacted regarding the claims, but our sister publication Portfolio Adviser did not receive a response in time for publication. Link Fund Solutions declined to comment.

This article was written for our sister title Portfolio Adviser