Is it Fair that Banks Compensate Fraud £85,000 within 7 Days?

After extensive lobbying by various bodies, the Payment Systems Regulator has confirmed that with effect from Monday 7^th October 2024, UK authorised banks and building societies will be required to pay compensation of up to £85,000 to victims of ‘authorised’ money transfers and payments to a fraudster posing as a genuine payee.  This is known as Authorised Push Payment (APP) fraud.

Before Monday, there was no legal requirement for a banking group to pay compensation to victims, but many have.  That said, there as many that did not as they blame the account holder for authorising the payment.  Classic example of this is Romance Fraud, where lonely or vulnerable people meet people online, build a romantic attachment with a ‘would-be’ friend or ‘love interest’ and send them money only to find that they been scammed out of their life savings as the ‘friend’ has built a fake identity, with fake photographs and even fake bank accounts.

Originally, compensation limits were proposed to be set at £415,000 but the PSR has agreed on a £85,000 limit with UK Banking (collective lobbying groups for banks) as £415,000 payable within 7 days would have placed too much financial strain on banking groups leaving them vulnerable to collapse and most frauds of this type are below £85,000 anyway.

Comment

There are two contrasting viewpoints here:

• If you are fool enough to send £000s to someone you have never met, or they are overseas and pretending to need help and you authorise your payment then why should your bankers be blamed for you authorising the money transfer?
• If the global banking industry cannot work together to ensure that bank accounts are opened by legitimate people that have had their identities checked and proven meaning there will no longer be fraudulent accounts, then they too are to blame, and banks should compensate.

We suggest it is harsh on UK banks if they receive an instruction to transfer money by their account holder and the receiving account is with a legitimate bank e.g., an overseas bank.  It should be the responsibility of the overseas (or UK) fraudulent bank account provider to refund the UK bank that has been forced to pay compensation to the victim.  This is the only way the global banking system will be forced to tighten up on banking fraud.

It is the International Organization for Standardization (ISO) that sets the standards for registered bank international codes (BIC) and international bank account numbers (IBAN).  They have designated Society for Worldwide Interbank Financial Telecommunications (SWIFT) to act as the registry for BICs that can then issue IBANs.  We suggest the ISO should set a new standard that enables SWIFT to require that registered banks that wish to accept and pay international bank transfers via IBANs should force the registered bank that opened the fraudulent account to pay compensation paid out by anu UK bank to a UK victim of APP fraud.