Banks and technology firms are at loggerheads over liability for online fraud within the UK

Tensions are escalating between banking, payments and social media firms within the UK over who needs to be chargeable for compensating people in the event that they fall victim to online fraud schemes.

From October 7, banks will probably be required to pay victims of authorized push payment (APP) fraud a maximum of £85,000 in compensation in the event that they were tricked or psychologically manipulated into handing over the money.

APP fraud is a type of fraud wherein criminals try to persuade people to send them money by posing as individuals or firms selling a service.

The £85,000 refund amount could prove costly for major banks and payments firms. However, it is definitely lower than the mandatory refund amount of £415,000 that the UK Payments Systems Regulator (PSR) had previously proposed.

The PSR abandoned its offer for the high maximum compensation resulting from backlash within the industry. In particular, the Payments Association industry association stated that the sum was far too costly for the financial services sector.

But now that mandatory fraud compensation is being introduced within the UK, the query is whether or not financial firms could have to bear the brunt of the prices of supporting fraud victims.

On Thursday, London-based digital bank accused Revolut Meta that it “falls significantly short of what is needed to combat fraud globally.” The Facebook owner announced a partnership with British lenders earlier this week NatWest and Metro Bank to share details about fraud activity on their platforms.

Woody Malouf, Revolut's head of economic crime, said that Meta and other social media platforms should help cover the prices of compensating fraud victims and that the shortage of shared responsibility for this leaves them “without incentive to do anything about it.” “.

Revolut's call for major tech platforms to financially compensate people who fall for scams on their websites and apps is not new.

Tensions between banks and technology firms have been high for a while. Online fraud has increased dramatically lately resulting from the increasing use of digital platforms to pay others and buy products online.

It's in June Financial Times reported that the Labor Party had drawn up proposals to force tech firms to compensate victims of fraud that happens on their platforms. It is unclear whether the federal government still plans to require tech firms to supply compensation to victims of APP fraud.

A government spokesman was not immediately available for comment when contacted by CNBC.

Riccardo Tordera, director of policy and government relations on the Payments Association, an industry trade group, told CNBC that given the “disproportionate amount” of fraud on social media, it’s “unacceptable” that tech firms aren’t taking obligation for reimbursing fraud victims.

“Social media platforms are still the Wild West for fraudulent behavior, and our members are calling on those responsible to increase the urgency with which they implement regulations that would make it more difficult to carry out these activities,” Tordera said in a comment via Email on Monday.

Matt Akroyd, industrial litigation lawyer at Stewarts, told CNBC that following their victory in reducing the utmost reimbursement limit for APP fraud to £85,000, banks will “get a further boost as they push the government to accept some regulatory liability.” “Tech company is also successful.”

However, he added: “The question of which regulatory regime could cover those companies that do not play an active role in the PSR's payment systems and how is complicated, meaning this issue is unlikely to be resolved quickly.”

In general, banks and regulators have long been urging social media firms to work more closely with retail banks within the UK to assist combat the rapidly growing and ever-evolving threat of fraud. A key demand was for tech firms to share more detailed details about how criminals are abusing their platforms.

At a UK financial industry event on economic fraud in March 2023, regulators and law enforcement stressed that social media firms have to do more.

“We're hearing anecdotally today from all the companies we speak to that a lot of this fraud is coming from social media platforms,” Kate Fitzgerald, head of policy at PSR, told attendees on the event.

She added that “absolute transparency” was needed about where the fraud occurred in order that regulators could know where to focus their efforts in the worth chain.

Another criticism from regulators on the event was that social media firms aren’t doing enough to combat and stop fraud attempts by web users.

“What is missing is the major social media companies deleting suspected accounts that are involved in fraud,” Rob Jones, director general of the National Economic Crime Centre, a division of Britain’s National Crime Agency, said on the event.

Jones added that it was difficult to “break through the inertia” of tech firms to “really get them to go for it.”

Meta has rejected suggestions that the corporate needs to be held chargeable for paying compensation to victims of APP fraud.

In written testimony to a parliamentary committee last yr, the social media giant said that banks within the UK were “too focused on their efforts to transfer liability for fraud to other industries”, adding that this “creates a hostile environment that plays into their hands.” by fraudsters.”

The company said that as a part of its Fraud Intelligence Reciprocal Exchange (FIRE) initiative, it may possibly leverage live intelligence from major banks to stop fraud and further develop and improve its machine learning and AI detection systems. Meta called on the federal government to “encourage more cross-industry collaborations like this.”

In an announcement to CNBC on Thursday, the tech giant stressed that banks, including Revolut, should look to collaborate with Meta on its FIRE framework to facilitate data sharing between the corporate and major lenders.

FIRE “is designed to enable banks to share information so we can work together to protect people who use our respective services,” a Meta spokesperson said last week. “Fraud is a cross-industry problem that can only be addressed by working together.”