UK banks forced to protect customers from scammers! What about Australia?

If you are in business, you would think that what is good for your customer is good for you, right? Apparently Australian banks don’t think so.

This was already apparent from the relentless closures of bank branches, not only in regional and rural areas of the country, but many metropolitan centres too. But with the growing barrage of scams against Aussie bank customers—which the banks imply have nothing to do with them—it is becoming undeniable.

In the UK the Financial Services and Markets Act 2023, finalised on 29 June 2023, imposed requirements on the Payment Systems Regulator (PSR) to act to stop Authorised Push Payment (APP) Scams. “APP scams happen when someone is tricked into sending money to a fraudster posing as a genuine payee”, explained the PSR. The new law takes effect this October and as a result the PSR is cracking down on banks.

Asked about the new UK rules on ABC Radio Brisbane in July 2023, Australian Financial Services Minister Stephen Jones said, “When you look at what the UK does, we’ll probably look at something which travels in the same direction.”

That was one year ago, and still nothing. While with each passing day more lives are ruined by scammers.

Jones foreshadowed a “tough” new code of practice for the banks, but on 27 June 2024 ASIC released an overview of the new version of the Australian Banking Association’s (ABA) Banking Code of Practice, hashed out in consultation with the ABA—the representative of the banks. There is no mention of requiring banks to target scammers nor to reimburse customers, only an innocuous offer that “In coming weeks, ASIC will also release reports on Better Banking for Indigenous Australians, credit card offerings, and scam detection, prevention and response.”

In 2023 payments fraud fleeced UK citizens of nearly £1.2 billion. For Australia it surpassed that figure, with losses in 2023 reaching $2.74 billion (around £1.4 billion at today’s rate), according to the Australian Competition and Consumer Commission. But the response in the two countries has been vastly different.

In December 2023, Britain’s Payment Systems Regulator announced new regulations requiring British banks to reimburse customers who have been defrauded by scams within five business days. Banks will have to refund customers up to £415,000, starting in October 2024, with the refund split between the bank where the money is taken and the bank where the money is received. Managing director of PSR Chris Hemsley said that “By creating incentive on both sides of [a scam transaction], it gives both of the firms an incentive to actually prevent these frauds in the first place.” Banks can deduct an “excess” payment of £100 from a claim, but only if the customer is not vulnerable; and, if the bank believes the customer has been negligent and is not eligible for reimbursement it will have to prove its case.

Earlier, in May 2023, British government ministers launched a new fraud strategy to target financial scams, conducted over the phone, social media and technology platforms, which are now the most common form of crime in the UK, establishing a specialist taskforce of some 400 investigators drawn from the police and the National Crime Agency. It would include harnessing technology to prevent scammers piggybacking off legitimate phone numbers, outlawing sim farms which send multiple scam texts simultaneously, banning cold-call sales of financial products, measures to strengthen payments systems, a system for confirmation of payees, and measures to make it easier for consumers to report scams.

The PSR’s Hemsley said that we’re trying to “design this fraud out of the system”. He told ABC News in July 2023 that his agency had had discussions with the Australian Banking Association about the UK’s new laws. A 2023 ASIC report revealed that less than 5 per cent of Australian bank victims recover defrauded money from the Big Four banks.

But the ABA apparently knows better than the British agency, saying: “The key takeaway from discussions with UK stakeholders was that a mandatory reimbursement model on banks alone does not create the most effective incentives for all organisations to work together to disrupt scams.”

Ahead of making reimbursement of victims mandatory, the PSR worked with the banking sector and payment service providers to implement the new legal instruments and shone a spotlight on the problem. Already in October 2023 the PSR began publishing a fraud performance report for the top 14 banks and nine other firms, which are the highest targets of fraud, to make transparent which banks are tackling the problem and which are not.

Some British banks offer scam checker services where customers can easily make contact with bank staff before sending a payment. One bank, TSB Bank, commenced a reimbursement scheme for defrauded customers in 2019, refunding 97 per cent of claims, and subsequently saw a reduction in fraud. “I’ve seen firsthand the incentive it places on us to stop fraud happening, because when it does happen, the cost sits directly with TSB”, the bank’s fraud prevention director Paul Davis told ABC News in 2023. “Our share of losses is well below what we would expect for a bank of our size, and I’m really confident that when the payments regulator mandates this action across the industry, other firms will see exactly the same things that we’ve seen.”

This directly contradicts arguments by the Australian Banking Association that reimbursement of scam victims would lead to a “honeypot” effect, drawing more criminals towards Australian bank customers.

Not coincidentally, the latest annual report of banking body UK Finance revealed a 66 per cent increase in the number of people who prefer to use cash for everyday spending. British financial regulator, the Financial Conduct Authority, on 18 September will usher in its new rule restricting banks from closing branches without first ensuring that alternative banking access is available. Also mandated by the Financial Services and Markets Act 2023, the FCA has now published full details of the new powers with which financial institutions must comply. But the plan does not go anywhere near far enough, according to British press reports, with Martin Quinn, campaign director at Payment Choice Alliance, stating: “The public has lost 6,000 bank branches in the last nine years, a few banking hubs just won’t cut it”. As ACP has maintained, branches are an equally important factor in reducing scams.

By Elisa Barwick, Australian Alert Service, 31 July 2024