Financial Liability, Banks and Social Media Firms' Debate Over UK's Online Fraud

Tensions are escalating between the banking and payments industry and social media companies in the U.K. over financial liability for online fraud with a debate centering on who should be responsible for compensating victims of these schemes.

Starting October 7, banks will be required to refund victims of Authorized Push Payment (APP) fraud, up to £85,000, where criminals trick individuals into making payments by impersonating businesses or people.

Bank liabilities and Payment Firms

This new restriction of £85,000 would impose financial stress on major banks and payment firms. However, it is significantly lower than the £415,000 that the UK’s Payment Systems Regulator (PSR) had initially considered. Due to strong opposition from the industry, most notably from the Payments Association, the PSR conceded, stating that the original figure was too high to be feasible for the financial sector.

As claims of compensation continue to unravel, one question still indicates an answer: who will pay the price for this? The financial institutions. Revolut, a digital bank in London, took a public punch at Meta, the parent company of Facebook, over perceived less than sufficient efforts to fight fraud. Meta and other social media platforms really need to help carry some of the cost of compensation for fraud victims. Because they bear no responsibility, they have no incentive to do anything about it, said Woody Malouf, head of financial crime at Revolut.

Of course, the move to make the tech platforms more financially liable is not something new. Increasing incidents of online fraud, driven by the increased use of digital platforms for transactions and banking instruments, has added to the tensions.

Recently, the Financial Times reported that the Labor Party had drafted proposals that would hold tech firms responsible and ensure financial liabilities for compensation for fraud victims, but the status of those proposals remains unclear.

Legal experts such as Matt Akroyd at Stewarts say that if the banks can force the government into imposing financial liability on tech companies, this could present them with further excuse. However, Akroyd warned that a financial liability complication may result in the determination of a regulatory framework for companies that don’t take part in the PSR’s payment systems.

The UK banking sector has been advocating for closer collaboration with social media companies to combat the growing threat of fraud, with regulators urging tech giants to provide stronger intelligence on how criminals exploit their platforms.

Kate Fitzgerald, policy head at the PSR, said that “A large proportion of this fraud emanates from the social media platforms.”

Speaking at a finance industry conference late last week, Rob Jones, director general of the National Economic Crime Centre, said social media firms should take down suspect accounts used to commit fraud and expressed frustration over the challenge in motivating tech firms into effective action against deceitful activities.

Calls for accountability had been issued against Meta, as many called on the tech giant to take financial liability when fraud occurs with APPs. Meta pushed back, citing that banks seemed too concerned with passing liability. Accordingly, Meta referred to its Fraud Intelligence Reciprocal Exchange, or FIRE, the support of sharing data among bank instruments to improve fraud detection and bank liabilities.

A spokesperson from Meta said, “Fraud is a cross-sector spanning issue that only collaborative work can address.”

Meta has urged banks, including Revolut, to adopt its FIRE framework, under the pretense of enhancing data sharing and collective actions against fraud, highlighting the ongoing debate in the UK on who should bear the financial responsibility for online fraud.

This issue presents another obstacle in the much-needed cooperation between financial institutions and technology companies.

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