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During a public hearing, Treasury minister John Glen and security minister Damian Hinds were held to account by members of the UK’s parliament (MPs), as they tried to defend rocketing fraud issues in the UK.
Three-quarters of a billion fraudulent activities have taken place online in the last six months, with many cases in which individuals have lost their livelihoods, warned Mel Stride, parliamentarian and chair of the Treasury Select Committee, as he pushed the ministers to defend their record so far.
“Am I happy? No, I am not happy. If you want us to sit here and say that we are happy with the progress made today, no, of course not. We have a great deal further to go,” acknowledged Damian Hinds, a minister at the Home Office with responsibility for economic crime.
The fact is that this is a rapidly growing area of crime, he said, defending the government's work so far.
Most of the crime today is the combination of three words: "fraud, economics and cyber," noted Hinds at the hearing.
“It is not a small segment, it is most crime, and particularly with the development of the technology and the increasing globalisation and multi-nationalisation of these organised crime gangs, there is a huge amount to do just to keep up, but we need to make sure we are steps ahead,” Hinds warned.
APP fraud
According to John Glen, economic secretary to the Treasury responsible for the UK’s financial services, it is hard to deal with the uptick in economic crime with a single intervention as there is quite a lot there.
“An area that I want to focus on is push payment fraud,” said Glen, noting that some progress has been made in this space.
Authorised push payment (APP) fraud scams happen when a consumer or business is tricked into sending money to a fraudster that is posing as a genuine payee.
According to UK Finance, £355m was lost to APP scams in the first half of 2021, overtaking card fraud losses for the first time.
The evolving nature of the context in terms of the different actors, the banks and the faster payments scheme means that there is an issue around how much friction you put in the system, he said.
“Faster payments has indeed been a problem, as it drives scammers towards us,” said Stride, asking Glen to provide more details on what has been successful in lowering AFP fraud, who said that schemes such as Confirmation of Payee (CoP) have been able to lower the threat.
CoP is an account name checking service that helps to make sure payments are not sent to the wrong bank or building society account.
Reimbursing the victim
The PSR currently has a consultation open on APP fraud scams.
The proposals being suggested by the regulator include the publication of fraud data by financial institutions, improving scam prevention tactics and reimbursing victims.
The last of the proposals depends on the work of Glen’s department, which has said that legislative changes will be made by the government to remove the regulatory barriers that currently prevent mandatory reimbursement for scam victims.
APP fraud was a common theme during the hearing, with Anthony Browne, a member of the centre-right Conservative Party, pressing the ministers on whether the voluntary code to establish a mechanism for reimbursing customers who were a victim of APP fraud should become a legal requirement, considering that banks such as TSB are not a part of it.
After defending TSB, Glen said that the focus should not be on the voluntary code for reimbursement but rather on preventing fraud in the first place.
“When we are agreeing on what people should be repaid, we have almost lost the bigger challenge, which is about preventing it in the first place. The banks are more concerned about how we can remove the risk,” he argued, stating that confirmation of payee was a significant intervention.
Confirmation of payee does not remove everything, but it puts up significant barriers before you can transfer those funds, said Glen.
The challenge that the financial services sector faces is that there are lots of new entities coming into the banking sector.
“Many of them do not resemble banks. The platforms are getting involved, fintechs are getting involved and it is difficult to have a universal obligation on transactions and the way they are conducted. Many of the new actors and the fintechs would say that they have security measures that are greatly enhanced above those of some of the incumbent large banks,” he pointed out.
“It sounds reassuring to put a universal obligation on everyone to reimburse, but the challenge is more about how we can prevent it from happening in the first place and develop the right responsibilities, given the different technical solutions that different sorts of banking actors enact in the marketplace,” he said.
Browne also suggested that online firms and mobile companies should have more responsibilities to prevent fraud, considering that a majority of the onus is currently on financial institutions. “They seem to me to be ten years behind financial services in combating fraud.”
Discussing the issue of bulk texting, Browne pondered whether these companies should be carrying out know your customer (KYC) checks in a bid to lower the fraud threat.
“You would have thought that behaviour would be very easy to identify and that it would be very easy to quickly put a stop to it if Ofcom required mobile phone companies to do KYC checks on bulk texters, but that has not happened,” he said.
In response, Hinds stressed that the government is keen to work more closely with these sectors to combat fraud, such as through the Joint Fraud Taskforce.
Further steps include developing the voluntary telecoms charter to combat fraud, which was published in October this year.
“There is a heightened role for telecoms operators to play, as there is for other parts of the industry,” said Hinds.
