| PPI Refund

Investments are considered to be some of the safest ways of being more financially secured. No matter if you are saving or not, making an investment in a financial product is never a bad idea. It is difficult to have control over the money you have and investing the same would help you save it for the times when you really need it. However, everything is not so rosy about the picture you just dreamt in your head! Along with being one of the most fruitful financial practices, investment is also a host of several scams and frauds.

Why Many Financial Scams Revolve Around Investment

In the financial history of the world, majority of the scams that have been committed revolve around investment. The reason why fraudsters choose this aspect is because investments usually involve huge sums of money. People set aside a chunk of their money and invest the same for their future.

This faith is often manipulated in the market. Another bait used by scammers is the greed factor in the customers. Everyone hopes for a handsome return on their investments, and if they have put in a good amount of money, the greed for a significant return is that much higher. There have been several cases of investment scandals in the country for years. However, in the last decade, one such scandal took the entire country by shock. The infamous PPI mis-selling scandal started more than a decade ago. Thousands of people were wrongly sold the policy and billions were robbed off their money without their knowledge. Fortunately, people started realising about the scam and began claiming the compensation. This claiming of compensation has been going on for many years now. Even today, there are new claims pouring in every week. This is how disastrous an investment scandal can be. Customers are tricked into investing in a policy which seemed promising enough, but poorly explained. This was done on purpose to make people invest into it and rob them off later. Several people didn’t even know about this little investment they made along with a loan sanctioned from their commercial bank.

The Next PPI-Like Scandal?

The PPI scandal has been the talk of the town for years at a stretch. Now, as the scam is about to come to an end in the next two years, financial experts are smelling another scam knocking at the door. There have been speculations that crowd-funding could very well succeed PPI to be the next big investment scandal to be committed in the country. The UK’s crowd-funding industry is one of the great success stories of the so-called FinTech (financial technology) sector. But while the launch of almost 100 internet-based crowd-funding platforms – each one bringing together people with money to lend or invest with consumers and businesses looking for funds – is a story of explosive growth, there has been increasing concern that a scandal could be brewing. Now the Financial Conduct Authority, the chief City regulator, is stepping in for the second time in two years. Though new in the market, crowd-funding has helped a lot of entrepreneurs to set up successful businesses.

The reason behind this popularity is the low initial investment amount. As an investor, you put in a nominal amount along with several other investors. This reduces the risk element. As the borrower, you have a big sum accumulated by a pool of smaller amounts put in by the investors.

The FCA started regulating the crowd-funding process in 2014, where it set all the necessary rules and guidelines for the same. Two years on, Christopher Woolard, director of strategy and competition at the FCA, says that while the regulator doesn’t want to inhibit innovation, it is now keen to make sure the increasing number of ordinary savers and investors putting money into crowd-funding aren’t going to get caught out. Last year alone, the sector raised about £2.7bn, more than five times as much as in 2013. Mr Woolard further gave a statement saying that they would want to explore concerns that have been expressed about developments in certain aspects of the market. He added saying, “We believe now is the right time to consider whether our requirements remain appropriate and that we have the right rules to support the development of this dynamic market by ensuring consumers are adequately protected.” This statement has led to further speculation about crowd-funding being an accident waiting to happen. Though the FCA has always wanted to revisit the regulation in 2014 itself, there is hardly any doubt that the regulator has been spooked by several warning signs flashing up in different places across the sector.

PPI-Like Warning Signs

There can be convenient parallels drawn between the cases of crowd-funding and PPI. In both the cases, there has been secrecy involved in the tendency of robbing people off their money. Further, the government backing for the sector has given it credibility as well as legitimacy with the investors who would probably have steered clear in their early days. There is a range of tax reliefs which are on offer to the investors when it comes to crowd-funding.  As crowd-funding is fairly new, it is obvious for the investors to be cautious about where they put their money. However, the FCA interference has given them a little assurance about the same, which was also the case with PPI.

People were scared of investing their money or taking a loan from commercial banks until the Ombudsman interfered and guaranteed to address any issue related to the policy being wrongly sold to them. You really need a regulatory body to assure the scared customers to carry on with their financial ventures.

So, due to such speculations, crowd-funding is being touted as the successor of PPI in terms of investment scandal of significant proportions. It doesn’t seem as if it would be a destructive scam after what people faced during the PPI scandal. However, all we can do is be alert and make all our financial decisions very wisely. The more you are tempted by an investment product, the more blinded you get to the details, which is exactly what the scammers are hunting for!

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