Banking Fraud review 2017 to 2021 and 2022 glimpse

Scammers are after your money in your bank account and the latest UKFinance Fraud Report 2022* generated newspaper headlines below:

“Britain is £3bn fraud capital of the world: Probe reveals 40m Britons have been targeted by scammers this year... but just 2% of our police are investigating the crime plague”**

In fairness, bank fraud – Credit Cards, Authorised Payments, Remote Banking and Cheque frauds – in total have started to plateau over the last two years.  However, the fastest growing category, APP Fraud increased £229 million and followed by remote banking an extra £47 million.  Credit Card fraud saved £146 million and cheque fraud virtually disappeared.

It’s the APP Fraud that is of most concern. 

The issue is the banks regard this type of fraud as the responsibility of their clients. The banks believe they are beyond reproach once you have been scammed. Not only do you have to handle the mental anguish and embarrassment of being conned but at best there is only a 50/50 chance of getting any of that money back.  

Over the past 5 years the banks have refused to reimburse over 500,000 of their customers close to £1 billion resulting from APP Fraud.  As the Financial Service Ombudsman, the final appeal against banks decisions, over turned up to 75% of the banks negative decisions for not reimbursing indicates banks’ arbitrary and capricious processes. The reimbursement programme did pick up sharply when the Voluntary Reimbursement Code (CRM) regulation started in the top 6 banks in 2019 from 26% to 47% in 2020 but that too looks like it’s plateauing with just under 50% recorded in 2021.

The main reasons for this includes the lack of Confirmation of Payee (CoP) in the industry, which allow the fraudsters’ banks of choice i.e. banks not CoP enabled, and CRM not being compulsory.

Payment System Regulator is proposing by June 2024 the UK banking industry will add more banks onto Confirmation of Payee (CoP), which is excellent. The scammers like this timeframe and banks’ still not telling each other about scammers’ bank accounts.  

Perhaps the regulators should follow one banks’ reaction to person who had reported a scam to his bank and was told, this is your second time so there will be no reimbursement on this occasion. 

The regulatory should enact the Baseball Rule of three strikes and your out.

That is when the bank’s payee bank account has more than scams reported, then that bank has to reimburse the payer banks the amounts outstanding.  

The fact is banks cannot agree on which bank is responsible for the APP fraud other than their own client allows scammers to prosper. 

There are two regulations in place today: Know Your Customer (KYC) and Anti Money Laundering (AML).  Given the access available to fraudsters, they need at least 10 bank accounts to move money throughout the banking system, a much more robust enforcement of KYC and AML with reports into the Bank Board is required.

This is key as banks are encouraging on line banking while closing branches.  The mobile is becoming the major point of contact with the bank. Often, if a mobile goes unused for 1-3 months, numbers maybe recycled. The longer the period of disuse, the more likely repossession becomes. One researcher estimates up to 66% of recycled numbers are still connected to online bank accounts.

The next report UKFinance report is due September for the half year 2022. As we have seen little in the way of regulatory changes: CoP Phase 1 upgrade is due a year from now, reimbursement remains voluntary and while information sharing is starting to gather pace; suggest trends will continue per usual. 

Another £300 million to be add to the £1 billion retained by the banks in non-scam reimbursement. Perhaps a system for Payment Protection Against Fraud (PPAF) should occur.

*(https://www.ukfinance.org.uk)

**https://www.dailymail.co.uk/news/article-10955193/Britain-3bn-fraud-capital-world-Probe-reveals-40m-targeted-scammers-2022.html