Who should be held accountable for funds being diverted from bank accounts with faster payments? (Authorized push payment scam: APP scam)
v Money scammed from bank accounts 2018 to 2021: £1,840 million
v Money returned to bank customers from 2018 to 2021: £660 million
v Money lost to scammers: £1,180m who reported the scam
v An estimated another 40% do not report fraud as there is no justice
v Justice could see scammers’ banks recoup £300million a year
Over the next 2-3 years over 500,000 people will be scammed out of £1billion
Banks and fraudsters should be held accountable and liable unless the bank customer has shown “gross negligence” or involvement in the fraud.
Criminals and scammers use bank accounts and both they and the supporting bank should be held accountable for the injustice. The FCA targets criminals by leveraging existing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. In the pre-digital environment, allowing criminals and their mules to engage in a crime that requires bank accounts could be seen as an accessory and a bet on a crime.
v The scammer and the scammer’s bank (with exceptions) are liable
- Criminals (or their mules) need a bank account to cheat
- Banks subject to FCA regulation must have Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures in order to obtain a banking license
- Each Faster Payment transaction has a unique reference (FPIN), and when the money arrives at the scammer’s bank account, it’s instantly split into smaller payments and routed with their own FPINs. The bank holding the scammer’s bank account knows where the money came from and where it went. If the bank receives a fraud complaint, they must act or the fraud will continue. It should be mandatory for the fraudulent bank to block the account and refund the customer money to the payer’s bank
- Fraudsters seek out the banks with the lowest fraud protection as their customers. Mandated regulation of nine banks to use Confirmation of Payee (CoP) confirmed that non-CoP banks are now the first choice of criminals and mules
- Exceptions: if liability is transferred to the client:
- When the bank customer (payer) overwrites the payee confirmation (CoP), they indicate that “the new payee name is different or not in the bank records” and makes the payment the second or third time when asked : “Do you want to pay ?’ Banks should inform the customer that this looks like gross negligence and should it turn out to be fraud you are liable. Research shows that when the payee is not the same as the bank records, up to 25% of payers override CoP warnings
- A significantly smaller number of bank customers are involved in fraud. A map at the London Museum shows that less than 2% of the population belonged to the criminal class, not 60% as bank refunds suggest
v Identify new banking practices for refunds
As banks continue to use existing banking practices that have not fully adapted to the digital world, as scammers have done, to maintain trust in banks, the requirements of the voluntary reimbursement policy should be mandatory and uniform rules should apply to all.
In 2021, £230million went unrecovered for nebulous reasons (see Financial Ombudsman Service comments). Going forward, the rules for consistent and fair reimbursement by banks should probably be managed by the payment systems regulator or UKPay.com.
As this would be fair, the 40% who are currently not sharing their emotional distress and financial loss by not reporting fraud could be prompted to do so. This could result in an additional £90million in reimbursements
v Faster Payments – The Genie is out of the bottle
- The clear payment option for consumers is to receive the money in a matter of seconds
- 3.4 billion faster payments in 2021 and 20% more than 2020
- The fraudulent payment must be stopped at the source – before the payment is made – as the volumes are so large that attempting to withhold a specific payment is difficult and expensive
- The technology gives a response time of less than 2 seconds by default and when the money is gone, it’s gone
- IBANs (International Bank Account Numbers), used for international payment transactions, do not verify the account holder’s name, an old banking practice
The UK was first with Faster Payments, which is now installed in over 50 countries. By getting a grip on fraud, the UK should become the world’s expert in fraud prevention and provide fairer, more equitable justice for fraudsters.