Why are banks drag­ging their feet on fraud preven­tion?

The Daily Telegraph - Your Money - - MONEY - Ad­di­tional re­port­ing by Mar­i­anna Hunt

Vic­tims of scams are yet to ben­e­fit from a range of anti-fraud mea­sures be­cause there are too many banks and com­pet­ing schemes, in­dus­try ex­perts have said. A string of changes to the way pay­ments are made and rules around scam pro­tec­tion have been dis­cussed for years but are yet to be en­forced by reg­u­la­tors, de­spite the fact that close to £1m is be­ing stolen from con­sumers ev­ery day. Fig­ures from UK Fi­nance, the bank­ing trade body, re­veal that fraud­sters took £145m in the first six months of 2018 but just £31m was handed back to vic­tims.

In 2016, con­sumer watch­dog Which? sub­mit­ted a “su­per­com­plaint” to the reg­u­la­tor on be­half of vic­tims, de­mand­ing bet­ter pro­tec­tion from crim­i­nals. But de­spite the in­dus­try spend­ing months build­ing a code set­ting out how vic­tims should be re­im­bursed and chang­ing how pay­ments are pro­cessed, nei­ther is in place.

Gareth Shaw, of Which?, said: “Two years on from our su­per­com­plaint and banks have only done the bare min­i­mum to tackle bank trans­fer fraud, drag­ging their heels while pre­ven­tive mea­sures and re­im­burse­ment mod­els could have been adopted sooner.

“Banks placed too much faith in ed­u­cat­ing their cus­tomers through aware­ness schemes like ‘ Take Five’, in­stead of tak­ing con­crete ac­tion.”

Tele­graph Money asked banks, reg­u­la­tors and the trade body UK Fi­nance why these mea­sures were not yet in place.

One ma­jor bank blamed the pro­lif­er­a­tion of start-ups cre­at­ing com­pli­cated tech­nol­ogy, which needs to mesh with the rest of the in­dus­try. One reg­u­la­tor said the sheer num­ber of banks meant im­ple­ment­ing in­dus­try-wide mea­sures would take time. Dis­putes over who pays for re­funds have also ham­pered progress on the “re­im­burse­ment model”.

A raft of mea­sures aimed at help­ing scam vic­tims have been promised for years. So why, asks Sam Mead­ows, are we still wait­ing?

Rules on re­funds

Ear­lier this year, the Pay­ment Sys­tems Reg­u­la­tor set up a group of con­sumer ad­vo­cates, banks, char­i­ties and in­dus­try bod­ies to draw up a set of rules on when vic­tims should get their money back from banks.

It was fi­nally un­veiled a fort­night ago and, while vol­un­tary, would com­pel banks that fail to pro­tect vul­ner­a­ble cus­tomers or give suf­fi­cient fraud warn­ings on high­value pay­ments, to pay back losses.

It should have been en­forced im­me­di­ately but in­ter­nal ar­gu­ments mean the start date has been pushed back. The dis­pute comes down to who pays when nei­ther the cus­tomer nor the bank has acted neg­li­gently.

Con­sumer cham­pi­ons say that mak­ing the banks pay would in­cen­tivise them to build more ro­bust sys­tems, while UK Fi­nance chief ex­ec­u­tive Stephen Jones told MPs this week that this would in­dem­nify fraud, cre­at­ing an ex­tra in­cen­tive for crim­i­nals. He sug­gested in­tro­duc­ing a charge on bank trans­fers to be paid into a re­im­burse­ment fund. Other op­tions in­clude an in­sur­ance pol­icy and a “fine” on banks at fault.

Mr Shaw said the dis­putes were “con­cern­ing” and that banks needed to act swiftly to rec­tify the sit­u­a­tion. He added: “Banks ar­gue it is not fair for them to pay out if they are not at fault, but the ex­ist­ing sit­u­a­tion – in which the cus­tomer suf­fers the fi­nan­cial cost when they are not at fault – is com­pletely un­ac­cept­able.”

A spokesman for UK Fi­nance said it had be­come clear that a vol­un­tary code would not be enough and the prob­lem must be solved by reg­u­la­tion.

“It is vi­tal that we get the right out­come for cus­tomers and pre­vent the UK from in­ad­ver­tently be­com­ing a mag­net for fraud­sters,” he added.

Pay­ment pro­tec­tions

An­other cru­cial part of the anti-fraud puz­zle is im­proved se­cu­rity on bank trans­fers, called “con­fir­ma­tion of payee”. Cur­rently, when trans­fer­ring money on­line, a con­sumer must en­ter the name of the payee, but this is not checked. Con­fir­ma­tion of payee will re­quire banks to match up the payee’s name to that of the ac­count holder.

This should help pre­vent a com­mon ruse used by fraud­sters in which they pre­tend to be a third party, such as a so­lic­i­tor or fi­nan­cial ad­viser, and di­vert pay­ment to a fraud­u­lent ac­count. The mea­sure will be of­fi­cially an­nounced next week, but the reg­u­la­tor does not in­tend to en­force the rules un­til July next year.

The New Pay­ment Sys­tem Op­er­a­tor, which is lead­ing the de­vel­op­ment, said there were nu­mer­ous com­pli­ca­tions for banks. It said the sheer num­ber of banks, and the dif­fer­ences in sys­tems be­tween them, meant im­ple­ment­ing con­fir­ma­tion of payee was not easy.

UK Fi­nance said it was crit­i­cal that con­fir­ma­tion of payee was brought in se­curely, but that it was one of a num­ber of re­quire­ments the in­dus­try was work­ing on. “Many of these re­quire­ments are in­ter­re­lated and so need care­ful im­ple­men­ta­tion to avoid un­in­tended con­se­quences for con­sumers and users of the pay­ments sys­tems,” the spokesman added.

Com­plain to the crim­i­nal’s bank

A fre­quent prob­lem for scam vic­tims is the in­abil­ity to com­plain to the bank that al­lowed a fraud­ster to open an ac­count, of­ten with fake pa­per­work.

Banks of­ten refuse to help vic­tims by say­ing data pro­tec­tion rules mean they can­not di­vulge any in­for­ma­tion to help take the com­plaint fur­ther. Mr Shaw said the in­abil­ity to com­plain to the om­buds­man of­ten stalled vic­tims’ at­tempts to get their money back.

A con­sul­ta­tion held by City reg­u­la­tor the Fi­nan­cial Con­duct Author­ity (FCA) seeks to let con­sumers com­plain to re­ceiv­ing banks, and to the om­buds­man if it is not re­solved. The con­sul­ta­tion closed at the end of Septem­ber and the FCA is hop­ing to pub­lish a pa­per in the next few months with a view to en­forc­ing it from the start of next year. The FCA said there were sev­eral le­gal is­sues to con­tend with, mean­ing the pol­icy could not be in­tro­duced overnight.

‘Two years on and banks have only done the bare min­i­mum to tackle trans­fer fraud’

Fig­ures show that fraud­sters took £ 145m from bank cus­tomers in the first six months of 2018 but just £31m was handed back to vic­tims

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