The World Wide Web offers vast opportunities to buy financial products, save money and have choice. It's easy to compare prices and for smaller firms to sell to a wider public. In some sectors, such as car and travel insurance, independent firms and brokers offer good deals this way. They can do this because, compared with conventional marketing, the internet is cheap.
But equally, it is easy for the criminally-minded to set up in cyberspace. It is a threat the financial regulators take very seriously indeed.
Organisations including the Bank of England and the Financial Services Authority (FSA), the new watchdog, devote space on their own web pages to warnings about the problems the internet can bring. The FSA has advice on investing over the net, stressing that because a site looks legitimate, there is no guarantee it is. Buyers need to be more cautious than with normal financial products.
The internet's scams and frauds fall into two broad categories. There are the out-and-out scams, from offshore foreign exchange investment schemes to "alternative" investments and pyramid deals. Then there are criminals who use the net as a new way to defraud people of money.
Ian Dickson, a former independent financial adviser and editor of the MoneyWeb site, warns of several offshore deals of dubious repute, including one outfit which called itself the European Union Bank, but was based in the Caribbean offering foreign currency deals. Offshore sites often promise anonymity and high returns. "The problem is in two areas. There are your out-and-out scams, and then there are people pretending to be other people," he says.
The financial industry is particularly concerned with spoof sites: web pages that purport to be something they are not. Technically, it is very easy for a criminal to set up an internet address which looks very like that of a well-known company and create an impostor site.
"It is perfectly possible for anyone to establish a web site that looks like, and in certain circumstances behaves like, another one," explains Richard Woods at internet provider UUNet, which has some of the largest financial institutions among its customers. "You should be careful before you enter into any financial commitments that you know who you are dealing with."
So far, most "passing off" cases have either been jokes or sites set up by disgruntled customers, rather than deliberate frauds. Even so, the regulators feel the need to put out warnings. "We are not aware that this is a huge problem, but it is something that we thought was an area which could easily become a greater problem in the future," says Martin Hollobone, an internet expert at the FSA "It is a pre-emptive strike."
As access to the net widens, the potential for illegal activity grows. Most users today are technically adept and experienced. The sort of person who is prepared to buy financial products on-line now is the sort of person who has a computer at home, uses the net a lot and is likely to notice if a site supposedly set up by a large bank performs badly, or has a peculiar overseas address. But the next generation of users may not be that wary.
Technology, though, offers its own solutions, especially by making web sites more secure in the first place - so it is harder to copy files - and by making genuine sites easier to identify. Watermarking is one technique software houses are working on. A watermark would let organisations such as a regulator test that a site is what it claims to be. Trading without being authorised is illegal under the Financial Services Act, and its provisions extend to the net. Regulators will have more problems with policing sites based outside the UK, but that is not a problem unique to the internet.
Internet providers and the financial industry believe they can stay ahead of the conmen of cyberspace, but the best defence is consumer common sense."At the moment, it is definitely a question of caveat emptor," says Mr Woods.
q Contacts: FSA, by email at firstname.lastname@example.org or phone on 0845 606 1234 (local rates). Bank of England: www. bankofengland.co.uk.
MoneyWeb:www.moneyweb.co.uk. FSA: www.fsa.gov.uk. If you have found finance sites, good or bad, email: stephen.pritchard@dial. pipex.com.Reuse content