5
In response to the increased sophistication of financial scams, the UK government has introduced new legislation designed to bolster banks’ defences against fraudsters.
The recent announcement by HM Treasury and Economic Secretary to the Treasury, Tulip Siddiq MP, signals a significant step forward in consumer protection efforts.
Currently, banks must either process or refuse a suspected fraudulent payment by the end of the next business day.
Under these proposed new laws, banks will have the authority to extend the delay for payments that they suspect may be fraudulent by a further 72 hours. This change is critical, as it provides financial institutions with the necessary time to conduct thorough investigations into suspicious transactions.
An increased verification window is not just a procedural change; it’s enhancement of the banking sector’s ability to safeguard consumers. It gives banks the leverage to “break the spell” that fraudsters cast over victims – to use the words of Tulip Siddiq. The government’s targeted approach comes in response to the estimated £460 million lost to authorised push payment (APP) fraud in the past year.
Siddiq’s statement is echoed by Lord Sir David Hanson, Minister of State with Responsibility for Fraud, who underscores that fraud can affect anyone and have devastating consequences. By equipping banks with these new investigative powers, the legislation aims to act as a critical deterrent to the most common form of crime in England and Wales.
A category of bank transfer fraud that comprises a vast number of the fraudulent payments that this law will target are ‘romance scams’, also known as ‘romance fraud’.
This is where scammers use deceitful tactics such as creating fake profiles on dating sites or social media, pretending to care about an individual and entering into a romantic relationship with them to build trust, all in an effort to get the victim to transfer them money or obtain the victim’s financial details. This type of scam particularly preys on the vulnerable by manipulating emotions to extort significant sums of money.
Unfortunately, love really can be blind, but the extension of the investigation window is specifically geared towards combatting this type of deception, allowing banks sufficient time to examine new payees or flagged fraudulent accounts.
The evolving crime landscape, characterised by the prevalence of purchase scams and these insidious romance scams, demands a robust response.
The initiative has garnered support from various stakeholders within the financial sector. Rocio Concha, Which? Director of Policy and Advocacy, heralds this as a “positive step in the fight against fraud”, emphasising the importance of banks being empowered to take action against suspected scams without impacting the majority of everyday payments.
From the industry body perspective, UK Finance’s Managing Director of Economic Crime, Ben Donaldson, welcomes the prospective law as an alignment with the prolonged requests from firms for such protective measures.
UK Finance has been long-standing advocate for the introduction of such legislation, marking this a commendable step forward by the government and HM Treasury.
Nonetheless, to optimise the law’s impact, its implementation should be coupled with a strategic enhancement of public awareness and education regarding the risks associated with making these types of payment in the first place. It is well understood that the foundation of effective risk management lies in prevention – a far more advantageous approach than relying solely on detection.
Within the last few years, banks have added extra security checks for people making payments, with prompts and banking fraud warnings that force the customer to categorise where the payment is being made and why. This new legislation is a significant addition to that potentially vital security check.
Currently obligated to either authorise or decline a transaction by the end of the next business day, banks now have the latitude to apply scrutiny to payments for an additional 3 days. Financial institutions are tasked with communicating to customers the reasons behind any delayed payment clearly and providing guidance on steps consumers can take to resolve the issue.
While the primary drive of this legislation is to protect consumers from banking fraud, the government are also cognisant of the inconvenience that delayed transactions can cause. Therefore, banks will be mandated to compensate customers for any financial penalties accrued due to delayed payments, such as interest or late fees, strengthening consumer financial security and trust in the banking system.
It is critical to note that these measures require careful implementation and should be utilised in a precise and targeted manner.
Banks must commit to sharing intelligence with one another while maintaining close collaboration with law enforcement to pursue and dismantle the criminal networks benefiting from these fraudulent activities.
This new legislation is not a magic bullet, but a step in the right direction.
As with every preventative measure implemented, fraudsters will adapt to more ruthless ways of working, thus financial institutions must remain vigilant and ensure all their procedures and technology remain relevant and watertight.
If you need advice on any aspect of financial fraud – from fraud prevention to the recovery of funds lost to fraud – please get in touch with Ali Twidale, Banking & Financial Fraud Consultant. Ali is a Certified Fraud Examiner, and she will be happy to review your situation and put in place a bespoke plan of action to address your needs.
You can reach her at ali.twidale@esarisk.com, on +44 (0)843 515 8686 or via our contact form.
Get the advice you need
Our expert consultants are on hand to give you the support you need.
Lawyers, accountants, advisors, investors, senior
management. You name them, we help them find the answers
they need. Ready to discover how we can help you?
