Week In Brief - March 11, 2022

March 11, 2022
A short roundup of some of the week's payments news you may have missed. This week we look at the latest developments in a UK class action lawsuit against Mastercard, UK attempts to deal with scam online advertising, new global fraud research and a $124m crypto fraud in the United States. We also look at concerns from the FCA over a new Binance investment.

UK: Former Ombudsman Scores Another Victory In Mastercard Class Action

In the latest judgment issued on March 9, the Competition Appeal Tribunal (CAT) ruled people who were alive in 2016 but died since then are part of the class that can claim compensation for excessive interchange fees from the card giant.

Former UK ombudsman Walter Merricks brought a historic opt-out class action suit against Mastercard on September 6, 2016, seeking to represent a class of people who used Mastercard cards in the UK between May 1992 and June 2008.

The claim followed a European Commission decision which found that Mastercard set interchange fees at an unlawfully high rate.

The CAT has now ruled that the domicile date, which determines who is included in the class, should be September 6, 2016, the date when Merricks filed the claim.

This means that all individuals who meet the class definition and were alive at that date are within the class. By the estimates of the court, this concerns “some three million people” who had valid claims when these proceedings were started but have died since then.

At the same time, the CAT rejected Mastercard’s argument that the domicile date should be the date when the class action was granted in August last year.

The claim can now move ahead with an estimated size of 46.2m people.

According to press reports, the CAT also approved a higher interest rate of 5 percent above the prevailing Bank of England rate, which could add up to £2.7bn to the £14bn claim.

UK: Government Moves to Tackle Online Scam Advertising

The UK government has announced the expansion of the Online Safety Bill, which promises to put a new legal duty on the largest and most popular social media platforms and search engines to prevent paid-for fraudulent adverts appearing on their services.

These companies will need to put in place proportionate systems and processes to prevent (or minimise in the case of search engines) the publication and/or hosting of fraudulent advertising on their service and remove it when they are made aware of it.

It will mean companies have to clamp down on ads with unlicensed financial promotions, fraudsters impersonating legitimate businesses and ads for fake companies. This includes "boosted" social media posts by users which they pay to have promoted more widely.

The regulator Ofcom will set out further details on what platforms will need to do to fulfil their new duty in codes of practice. This could include making firms scan for scam adverts before they are uploaded to their systems, measures such as checking the identity of those who wish to publish advertisements and ensuring financial promotions are only made by firms authorised by the Financial Conduct Authority (FCA).

The move comes as the government also launches a consultation as part of a wider overhaul of how online advertising is regulated in the UK, including proposals to improve transparency and accountability and tackle harmful, fraudulent and misleading adverts.

Harmful or misleading adverts, such as those promoting negative body images, and adverts for illegal activities such as weapons sales, could be subject to tougher rules and sanctions. Influencers failing to declare they are being paid to promote products on social media could also be subject to stronger penalties.

David Postings, chief executive of UK Finance, said: "We strongly welcome the government’s announcement that it will expand the scope of the Online Safety Bill to include advertising on social media and search engines. UK Finance, alongside a number of other bodies, has long been calling for the government to make this change.

“This is particularly important given we know the majority of authorised push payment fraud starts online and that criminals often post fake adverts to try and trick victims.

“The banking and finance industry is leading the fight against fraud, but the scale of the threat means it's vital that all sectors, including online firms, do more to help protect the public. We look forward to working with the government and tech companies, including through the Online Fraud Steering Group, on further measures to tackle economic crime.”

International: Fraud’s Hanging Landscape

A new study by fraud detection specialist Ravelin found that, on a global scale, merchants experienced more fraud in 2021 than 2020, with new types of fraud affecting 62 percent of merchants.

Online payment fraud continues to be the biggest threat with 20 percent more businesses noticing an increase over the last year.

This is the most expensive risk according to the report. Global e-commerce losses from online payment fraud hit $20bn in 2021, a 14 percent rise year-on-year.

However, other forms of fraud have also become rife, according to Ravelin’s study. Policy abuse, in particular, grew during the pandemic, while refund abuse rose for 60 percent of merchants, up from 51 percent in 2020.

Promo abuse also saw a jump with 55 percent of merchants seeing an increase in 2021 from 49 percent in 2020. According to the survey, a quarter of online merchants had a significant rise in this category.

2021 was another turbulent year for e-commerce, commented Martin Sweeney, Ravelin’s chief executive. “Online e-commerce merchants are unfortunately a hot target for fraudsters, both on the buyer side and on the supplier side. Despite the tentative return of in-person buying, e-commerce continued to boom, and it became clear that the digital shift isn’t going anywhere.

“But with rising digital sales came increasing fraud attacks. It’s imperative that businesses invest in fraud teams and budgets in 2022, to create an ecosystem that comprises of fraud detection technology data and human insight to combat new types of fraud attacks fast,” he noted.

Fraud is not just hitting businesses. It is a headache for consumers as well. UK consumer association Which? estimates consumers lost £28,000 to authorised push payments (APP) fraud every hour between July 2019 and June 2021.

United States: SEC Unveils $124m Crypto Fraud

On March 8, the Securities and Exchange Commission (SEC) charged siblings John and JonAtina (Tina) Barksdale with defrauding thousands of retail investors in a scam worth $124m.

According to the SEC complaint, from June 2017 on, the Barksdales sold Ormeus Coin to investors on crypto trading platforms and falsely claimed that the token was supported by one of the largest crypto mining operations in the world.

The Barksdales told investors they had a $250m crypto mining operation and were producing $5.4m-$8m per month in mining revenues, when they had less than $1m of tokens in operation.

The siblings promoted the Ormeus Coin both on roadshows around the world, as well as on social media, YouTube, their website and with other promotional materials.

They also manipulated Ormeus Coin’s price and misused millions of dollars of investor funds for personal expenses, the SEC said.

"We allege that the Barksdales acted as modern-day snake-oil salesmen, using social media, promotional websites, and in-person roadshows to mislead retail investors for their own personal benefit," said Melissa Hodgman, associate director in the SEC’s Division of Enforcement.

UK: FCA Frowns Over Eqonex/Binance Deal

The UK Financial Conduct Authority (FCA) has expressed concerns over a deal that saw Binance UAB acquiring some specific contractual rights over crypto exchange Eqonex.

On Monday (March 7), Eqonex announced that it signed a partnership with Bifinity, formerly called Binance UAB, which is part of the Binance Group and offers fiat-to-crypto payments services for Binance.

Through a $36m loan, Bifinity has acquired certain contractual rights over Eqonex, including the right to appoint certain C-suite executives and two board members.

The FCA noted that Eqonex is the parent company of Digivault, an FCA-registered crypto-asset business, and following the transaction, individuals and entities that are part of the Binance Group may have become beneficial owners of Digivault for the purposes of the Money Laundering Regulations (MLRs).

The FCA stressed it “did not have powers to assess the fitness and propriety of the new beneficial owners or the change in control before the transaction was completed”.

The regulator expressed its concerns about Binance last June, warning consumers that neither the Binance Group nor Binance Markets are permitted to undertake any regulated activity in the country.

“Until outstanding issues are addressed, the FCA’s concerns about Binance Markets Limited remain, including those highlighted in the supervisory notice of June 2021,” the regulator stressed.

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