Who is responsible for online scams? Banks, Facebook turn a blind eye to fraud, UK government forces businesses to compensate

As more and more people in the UK fall victim to online scams, there is a growing trend of traditional banks, payment companies, and social media platforms shifting responsibility for compensating fraud victims. This is not just a phenomenon in the UK but a global issue. Now, these entities are being urged to take responsibility for preventing fraud and compensating victims. Starting from October 7th, UK banks are required to compensate victims of authorized push payment (APP) fraud, with a maximum compensation limit of £85,000.

For more information on the definition of APP fraud, please see here.

“Authorized push payment fraud” is a common scam where criminals impersonate trusted individuals or companies to deceive victims into transferring money to them. With the rise of digital payments and social media platforms, this type of fraud is becoming increasingly prevalent. The question of who should bear the responsibility for compensating victims – banks or the tech companies enabling the fraud – remains a contentious issue.

UK Banks Required to Compensate, Sparking Discontent Among Banks

CNBC reports that under new regulations, banks are now obligated to compensate victims of "authorized push payment scams" with a compensation cap of £85,000. This is a reduction from the £415,000 compensation cap initially proposed by the UK Payment Systems Regulator (PSR). The move comes as a result of industry opposition, concerned that higher compensation could place excessive financial pressure on banks and payment service providers.

However, even with the £85,000 compensation cap, it still represents a significant financial responsibility for banks, raising questions as to why banks are required to bear the brunt of fraud liability, especially when fraud often originates from social media platforms.

Revolut Accuses Meta: Calls for Tech Companies to Assume More Responsibility

UK digital bank Revolut publicly criticizes this policy. On Thursday, Revolut accused Meta, the parent company of Facebook, of not taking sufficient measures to combat fraudulent activities.

Woody Malouf, Head of Financial Crime at Revolut, believes that social media platforms should bear more responsibility in covering the costs of compensating fraud victims. He stated that tech companies currently have "no incentive to act" as they are not required to share responsibility or costs. This is not a new perspective; the financial industry has long been advocating for tech companies to assume financial responsibility for fraudulent activities on their platforms.

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UK Proposes Tech Company Liability Legislation

In June of this year, the UK Labour Party proposed legislation requiring tech companies to be accountable for fraud victims on their platforms and assume compensation responsibilities. However, whether this proposal will become policy remains uncertain as the UK government has not officially stated its position on the matter.

Commercial litigation lawyer Matt Akroyd stated that the new £85,000 compensation cap is a victory for banks, but they are also pushing for further regulatory changes to extend liability to tech companies. However, Akroyd cautioned that establishing a regulatory framework including non-payment system-related companies such as social media is very complex and may take time to resolve.

Promoting Enhanced Collaboration Between Banks and Tech Companies

The rise of digital platforms has greatly facilitated the increase in online fraud. Banks and regulatory bodies are also pressuring tech companies to enhance cooperation in identifying and combating fraud. In this year's UK financial industry activities, regulatory bodies emphasized that the majority of fraud originates from social media platforms.

Kate Fitzgerald, Policy Director at PSR, believes that tech companies need to maintain transparency. She stated: "There needs to be absolute transparency about instances of fraud so that regulatory bodies can focus their efforts in the right places." Authorities also urge social media companies to be more proactive in deleting accounts associated with fraudulent activities.

Rob Jones, Director of the UK's National Economic Crime Centre, criticized tech companies for their inadequate efforts in combating fraudulent activities. He stated, "What is currently lacking is the proactive removal by major social media companies of suspicious accounts related to fraud." He added that changing the inertia of tech companies in combating fraud remains challenging.

Meta's Stance: Opposes Compensation, Calls for Cross-Industry Cooperation

Tech giant Meta opposes the proposal for liability in "authorized push payment scams." In written testimony submitted to parliamentary committees, Meta pointed out that UK banks are overly focused on shifting responsibility to other industries, which could potentially benefit fraudsters. Meta advocates for a collaborative approach, suggesting that banks and tech companies work together, share intelligence, and collectively combat fraud.

Meta has launched the Fraud Information Reciprocity Exchange (FIRE) program, which utilizes real-time information from banks to enhance its fraud detection system through machine learning and AI. Meta calls for more cross-industry collaboration, encouraging financial institutions including Revolut to join the FIRE framework to enhance data exchange capabilities and collectively combat fraud.

Efforts are ongoing among banks, tech companies, and regulatory bodies to combat online fraud. The future distribution of financial compensation responsibilities among these sectors remains to be seen.

Taiwan's NDC Collaborates with Google, LINE, Meta for Fraud Prevention

The National Development Council (NDC) has launched the "Report Fraud Alert Query Network" in August this year, providing real-time reporting and querying of suspicious messages for the public, with a goal of automating processes and integrating channels for reporting public figures to reduce instances of impersonation fraud. Google, LINE, and Meta have all expressed full cooperation in the government's anti-fraud efforts. Google has introduced an advertiser verification program, LINE has strengthened management of financial investment fraud accounts, and Meta uses AI technology to swiftly remove fraudulent content and promotes nationwide fraud prevention education, aiming to create a safer online environment through public-private collaboration.