HSBC fully supports calls for tech companies to compensate for fraud, arguing that new compensation rules, which would force banks to compensate victims of fraud up to £85,000, will not stop the tide of fraud and prove that the financial sector is not the problem.
David Carrington, head of fraud at HSBC UK, said the rules, which come into force on October 7, will provide an incentive for banks and payments companies to improve their fraud detection systems. But he said they won’t be enough to curb fraud cases across the UK.
City lobbying groups have long complained that their members are being forced to foot the bill for fraud against customers, despite a sharp rise in the number of scammers targeting consumers through online platforms and social media.
Researchers say the majority of authorized push payment (APP) scams, which trick people into sending money to accounts run by criminals, are facilitated by text messages and fake online advertisements on platforms such as Instagram, Google, TikTok and Facebook Marketplace.
Data released by banking body UK Finance showed losses from APP fraud will total £459.7 million in 2023, with the number of cases rising to 232,429 last year.
“The broader ecosystem and the key players in that ecosystem have to be held accountable,” Carrington said. Banks need to be vigilant, but financial obligations “need to be imposed on other sectors,” he said. “They need financial incentives.”
The British government has not yet cracked down on tech and social media companies, instead asking them to sign a voluntary Online Fraud Charter promising to take steps to block deceptive content and protect people from fake advertising.
Mr Carrington said that unless the charter became law and forced big technology and telecoms companies to help compensate customers when they fell short in preventing online fraud, app fraud would become rampant.
“What we’re asking for is to move some of those obligations into regulation so that there’s a real obligation on other sectors that are part of the ecosystem to act and protect our common customers, our common users,” he said.
But “regulators will only step in if they determine that in practice the efforts being made (on fraud prevention) are insufficient and that the voluntary aspects that have been put in place are not delivering the results they would like,” he added.
Consumer protection efforts have so far focused on banks and payments companies that move funds out of customers’ accounts. The UK’s Payments Systems Regulator is expected to require refunds of up to £85,000 from October 7 after most companies failed to sign up to or continue to apply a voluntary industry code introduced in 2019.
But a spokesman for lobby group Tech UK said tech companies were working quickly to implement the voluntary charter and were committed to working with banks, law enforcement and governments to tackle online fraud.
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“The incentives to act are strong: the Online Safety Act will impose further significant legal obligations on online service providers,” the spokesperson said. “Extending liability protections will be neither effective nor proportionate. Instead, the focus should be on working together to develop better technological solutions to identify and stop online fraud, and prosecute the criminals who commit this crime.”
Starting next month, fraud costs will be shared equally by the banks and payments companies on both sides of a transaction, meaning new burdens fall on the companies whose accounts receive victim cash. This could be a blow to companies that are the biggest recipients of fraudulent funds, including PayrNet, Modulr and banks Zempler and Kroo, according to the PSR data.
But the industry was relieved when the PSR, following pressure from banks, fintech companies and some politicians, backed off plans to impose a maximum compensation cap of £415,000, which some argued could impose severe financial strain on many small businesses. A smaller cap of £85,000, which the PSR said would cover 99% of claims, is due to be finalized by September 30.
A Treasury spokesman said compensation for victims of APP fraud was a matter for the PSR. “The announcement of the consultation shows that the regulator is seeking to balance protecting victims of fraud with managing the impact on the industry and is listening to feedback,” they added.
