Lawmakers Criticise Finance Industry’s Obstacles to Making Fraud Refunds Easier

• A new scheme that aims to compensate victims of fraud might not deliver on its promises.
• Conflicts of interest could leave Payment Systems Regulator (PSR) delivering half-hearted reforms.
• UK MPs and lawmakers push back on the finance industry’s aims and timescales.

New plans to ensure victims of ‘authorised push payment’ frauds are refunded sooner might not be as comprehensive as first hoped. UK lawmakers in the Houses of Parliament have flagged up that leaving the finance industry to self-police might not bring about the desired upgrades as to how retail victims are compensated.

What are ‘Authorised Push Payment’ Scams?

So-called ‘authorised push payment (APP) scams’ have become the UK’s most extensive type of payment fraud. In 2021 they cost customers at least £583m.

That’s thought to be a conservative estimate as the scam targets corporations as well as individuals. Given that the reputational risk of going public discourages many businesses from doing so, industry experts believe the total size of the losses is greater.

As with many of the most effective scams, the APP approach relies on simplicity and catching usually sensible people unawares. In short, fraudsters deceive individuals or employees of organisations, tricking them into sending payments to a scam account. They often encourage action to be taken quickly and make individuals panic before having time to think it through properly.

Banking giant HSBC, in a notice to clients, outlines how APP scams differ from other types of fraud – with APP, “a criminal tricks you into transferring money to them”, as opposed to traditional scams where “criminals get access to accounts and steal money without the account holder’s knowledge.”

Upgrades Might Not Deliver

The proposed upgrade of the compensation system would ensure banks reimburse victims of APP scams within 48 hours. The organisation which would oversee the process and speedier resolution times is the Payment Systems Regulator (PSR).

The Treasury Select Committee has raised questions about how the scheme would work in practice. It flagged up that the PSR is guaranteed by the members of the financial eco-system, which would be effectively left out of pocket by customers being refunded. Harriet Baldwin MP, Chair of the Treasury Committee, highlighted that obvious conflict of interest, saying:

“Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.”

Source: Reuters

With lenders lobbying for some of the bill to be picked up by other parties, there is no clear route for the new programme to come into place before 2024. That means retail investors must remain vigilant and aware of the risks associated with online payments and investing.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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