Banks to Bear the Brunt of New Fraud Compensation Rules
Starting on October 7, UK banks will be legally required to compensate victims of authorized push payment (APP) fraud with a maximum reimbursement of £85,000. This new regulation is seen as a significant financial burden for banks, raising concerns about the division of responsibility for online fraud in the digital age. APP fraud, a scam in which victims are tricked into transferring money to criminals, has been increasing alongside the rise of online payments and social media use.
The £85,000 cap, while steep, is actually lower than the £415,000 originally proposed by the UK’s Payment Systems Regulator (PSR). The initial figure was met with industry-wide backlash, with financial firms arguing it was too high a cost to bear. While the revised figure is more manageable, banks remain unhappy with the increasing financial strain, and the spotlight is now turning toward tech companies, particularly social media platforms, to take greater responsibility for their role in the rise of fraud.
Revolut Points Fingers at Meta Over Fraud Fight
London-based digital bank Revolut has emerged as a vocal critic of tech giants, particularly Meta, accusing the company of not doing enough to combat fraud globally. In a recent statement, Woody Malouf, Revolut’s head of financial crime, called out Meta for falling “woefully short” in its efforts to tackle fraud, arguing that social media platforms should share in the financial burden of compensating victims.
Meta, which owns Facebook and Instagram, recently announced a partnership with UK lenders NatWest and Metro Bank to share intelligence on fraud. However, Malouf insists this is not enough. “Social media platforms have no incentive to address fraud as long as they are not financially accountable,” he said, echoing growing calls for tech firms to be held liable for scams conducted through their platforms.
A Growing Divide Between Financial and Tech Firms
The battle over who should bear the responsibility for online fraud is not new. For years, financial institutions have argued that they unfairly shoulder the majority of the costs, while tech companies largely avoid liability. The rapid rise in online fraud, exacerbated by increased digital payments, has only intensified the tensions.
The Labour Party has even proposed measures that would force tech firms to reimburse victims of fraud occurring on their platforms. While it remains unclear if the government will follow through on these proposals, banks continue to push for tech companies to be held accountable.
Matt Akroyd, a commercial litigation lawyer at Stewarts, notes that the banking sector already won a significant victory when the maximum reimbursement cap was lowered to £85,000. “Banks could receive another boost if their efforts to push the government to place some regulatory liability on tech companies is successful,” Akroyd said. However, he cautions that designing a regulatory framework to cover non-payment companies like social media platforms would be a complex challenge.
Calls for Social Media Platforms to Step Up
The frustration among banks and regulators isn’t just about the money. Many have long criticized social media platforms for not doing enough to prevent fraud from occurring in the first place. Kate Fitzgerald, head of policy at the PSR, highlighted that much of the fraud stems from these platforms. At a financial industry event in March 2023, she emphasized the need for “absolute transparency” on where fraud originates so regulators can better focus their efforts.
Similarly, Rob Jones, director general of the National Economic Crime Centre, stressed the importance of social media companies taking a more active role in tackling fraud. “The bit that’s missing is large-scale social media firms taking down accounts involved in fraud,” Jones said. He added that breaking the inertia at tech firms to take serious action has proven difficult.
Tech Firms Push Back, Calling for Collaboration
Meta has firmly resisted the notion that it should be liable for compensating victims of fraud. In a written statement to the UK Parliament, the company argued that banks are too focused on shifting liability to other industries, creating an environment that benefits fraudsters.
Instead of bearing the financial responsibility for fraud, Meta has advocated for greater cross-industry collaboration. The tech giant has developed the Fraud Intelligence Reciprocal Exchange (FIRE) initiative, which allows banks and tech companies to share real-time data on fraud. Meta argues that this approach, supported by advanced machine learning and AI systems, is the best way to combat the evolving fraud landscape.
A spokesperson for Meta reiterated this stance in a statement to CNBC: “Fraud is a multi-sector issue that can only be addressed by working collaboratively. Banks, including Revolut, should join efforts like our FIRE framework to facilitate better data exchanges and protect consumers across all platforms.”
A Complex Problem with No Easy Solutions
As fraud continues to rise in the UK, the debate over who should be liable shows no sign of cooling off. Banks and tech companies both face immense pressure to find solutions that better protect consumers without unfairly burdening one sector over the other. For now, the £85,000 compensation cap is a step toward supporting victims of fraud, but the question of who should ultimately foot the bill remains unresolved.
With regulators, banks, and tech companies all weighing in, it is clear that the issue of online fraud liability will remain a contentious topic in the UK for the foreseeable future.
