Across the British financial services ecosystem there seems to be one word dominating conversations at the moment – fraud. The risks of fraud and how to prevent it have become the subject of government action, with HM Treasury announcing new powers for banks.
The Treasury announced this morning that banks have been given new powers to delay and investigate payments suspected of being fraudulent. The maximum delay for suspicious payments has been extended by 72 hours, up from the existing timeframe of just one day from when the payment was made.
The government is alarmed about the extent of fraud in the UK. The Treasury estimates that £460m was lost to fraud last year alone, whilst fraud also accounts for over one-third of all crime perpetrated in England and Wales.
Economic Secretary to the Treasury, Tulip Siddiq, said: “Hundreds of millions of pounds are lost to scammers each year, targeting vulnerable communities and ruining the lives of ordinary people.
“We need to protect these people better, which is why we are giving banks more time to investigate suspicious payments and break the criminal spell that scammers weave.”
Fraud a pressing issue for payments and politicians
According to the Treasury, instances of fraud are dominated by purchase scams and romance scams. Separately, statistics released this week by digital consultancy Daemon found that 36% of British consumers have fallen victim to phishing scams in the past six months.
Countering the fraud threat has become a priority for a range of payments stakeholders including payments providers and banks, trade associations, regulators, and the government.
Some stakeholders have been calling for the payment delay to be extended for some time. The debate around fraud payments has also extended to discussions around Open Finance and instant payments, with some noting that the absence of a delay gives firms less time to validate the destination of a payment.
Ben Donaldson, Managing Director of Economic Crime at the UK Finance trade body, commented: “UK Finance has long called for firms to be allowed to delay payments in high-risk cases where fraud is suspected, and we are delighted to see proposed new laws supporting this.
“This could allow payment service providers time to get in touch with customers and give them the advice and support they need to avoid being coerced by the criminals who want to steal their money. This could potentially limit the psychological harms that these awful crimes can cause and stop money getting into the hands of criminals.”
The new powers for banks form just one part of the Labour government’s plans to counter fraud. Keir Starmer’s government launched new legislation to parliament regarding fraud last month, though this concerns social securities fraud and not the type of fraud the new bank powers deal with.
The Fraud, Error and Debt Bill aims to save £1.6bn in money lost to fraud over the next five years. Its provisions include enhancing and modernising the Department for Work and Pensions’ (DWP) fraud prevention capabilities and requiring banks to share data that may indicate potential benefit overpayments.
However, the fraud type of most concern for UK payments at the moment is authorised push payments (APP) fraud, which could take the form of the purchase and romance scams highlighted by the Treasury.
The Payments Systems Regulator (PSR) is introducing new rules on 7 October requiring payments firms to reimburse APP fraud victims up to £85,000, though this cap has been reduced from its initial level of £415,000.
Labour had hinted prior to the election that it was sympathetic to payments industry concerns that the PSR rules did not factor in the role social media and tech companies play in preventing fraud. Regardless, today’s announcement and the recent legislation shows that the government seems to have an agenda in mind on how to combat fraud, in its own way.
“Fraud is a crime that can devastate lives, and anyone can be affected,” said Lord Sir David Hanson, Minister of State with Responsibility for Fraud, commenting on today’s new bank powers.
“That’s why measures like this are so crucial to provide banks the investigative powers they need to better protect customers from this appalling crime.”
