Barry Faudemer
Chief Executive, Baker Regulatory, Jersey
Barry Faudemer is the Chief Executive of Baker Regulatory Services.
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Should Banks Automatically Compensate Victims of Fraud?
The recent changes to the UK APP Scam reimbursement model don’t extend to Jersey, the Cayman Islands or BVI. Considering the significant rise in these types of scams globally Governments should consider adopting this model to protect their local population.
Barry Faudemer
Victims of Fraud
A victim of fraud is described as being someone who is tricked into sending money to a fraudster who is posing as a genuine payee.
Every year thousands of individuals and businesses, both here in Jersey and in the UK, fall victim to Authorised Push Payment (APP) scams. These scams often leave their victims feeling devastated, as the impact of losing their life savings is so dreadful.
In the UK, the Payment Systems Regulator (PSR) is putting pressure on all banks and financial institutions to take positive steps to stop these scams from happening and to better protect their customers when they do fall victim.
Top APP scams
The majority of the APP scams reported fall into the following categories:
- Malicious payee – tricking a victim into paying for goods which either don’t exist or are never received
- Malicious redirection – where a fraudster impersonates a bank employee to either get their victim to transfer funds out of their bank account into the fraudster’s bank account, or to get their victim to divulge their banking password and details, so the fraudster can access their online banking and transfer the funds into the fraudsters account.
APP reimbursement requirement model
Under the new APP reimbursement requirement model banks and payment service providers based in the UK are now required to automatically reimburse their customers who have become victims of APP scams, which includes domestic payments and those made through the Faster Payment System up to a maximum of £85,000.00. Overseas payments or payments involving cryptocurrencies are not included within this reimbursement model.
According to the data published, the maximum figure of £85,000.00 is estimated to cover the vast majority of UK fraud claims made, and the banks must reimburse their customers within 5 business days of them (the bank) becoming aware of the fraud.
The victim’s bank will have a right to claim up to 50% of the fraudulent loss from the receiving bank holding the account where the fraudulent funds were sent. The model makes banks more accountable when holding accounts of known fraudsters. To adhere to the requirements, banks should enhance their APP fraud detection systems, both at the onboarding/KYC stage and when processing payments.
To qualify for reimbursement, the APP scam must have been made using some form of deception by the fraudster(s). Banks can refuse to reimburse customers if they can evidence that customers failed to meet the consumer standard of caution through gross negligence as set out in the PSR Guidance. This also protects customers regarded as vulnerable. However, the customer’s vulnerability has to have had a material impact on their ability to protect themselves from the scam.
By taking additional steps to verify customers, banks will ensure their customers are genuine and that their accounts are not being used to accept the proceeds of crime. This should also push banks into developing more robust processes and controls when supporting victims and handling their reimbursement claims. This approach will also force banks to analyse the data available and address any weaknesses and vulnerabilities identified. Hopefully, these changes will have an overall positive impact and ultimately result in driving down the number of frauds.
Will other Governments follow the UK's lead?
According to statistics, instances of APP frauds reported in the UK continue to significantly rise and figures have surpassed that of card fraud losses, which previously topped the UK fraud poll. The instances of Jersey APP frauds also follow a similar trend, and it will be interesting to see if the Jersey based Banks also apply this UK reimbursement model.
However, without some form of Government guidance being issued, our local banking industry is unlikely to readily follow this UK model, leaving our elderly and potentially vulnerable population open to abuse by this often-faceless crime.
Any steps taken to prevent our more vulnerable residents from becoming victims of fraud would be welcome. Baker & Partners have written to the Chief Minister on this matter, and we await his response, as a clear steer from the Government around reimbursing local victims would provide comfort to those left facing severe financial hardship as a result of having their life savings cruelly stolen by scammers.
By adopting this UK approach banks would have a strong duty of care to protect our local population, bringing our local requirements in line with the UK directive to combat financial crime.
Are you a victim of fraud?
Baker & Partners are acting for fraud victims and are here to help. We offer a free confidential 1-hour discussion on the options open to you in seeking recovery and compensation.
Reach out to Barry Faudemer via enquiries@bakerregulatory.com or call 719222.
If you think you’ve been a victim of bank account fraud this article details the next steps you should take to help recover your funds: Have you recently become a bank account fraud victim?