Anamika Dey, editor
Brief news
- The UK is facing rising tensions between banks and social media firms over compensation for victims of online fraud, particularly authorized push payment (APP) fraud, with banks set to provide up to £85,000 in compensation starting October 7.
- Revolut has criticized Meta for not adequately addressing fraud on its platforms and has called for tech companies to share the financial burden of compensating victims.
- Regulatory discussions are ongoing regarding the potential liability of technology firms for fraud originating on their platforms, with calls for increased collaboration between banks and social media companies to combat fraud effectively.
Detailed news
The United Kingdom is experiencing a rise in tensions between banking and payment companies and social media firms regarding the allocation of responsibility for compensating individuals who are the victims of online fraud schemes.
Banks will be obligated to provide a maximum of £85,000 in compensation to victims of authorized push payment (APP) fraud who were deceived or psychologically manipulated into transferring the funds, effective October 7.
APP fraud is a type of scheme in which criminals impersonate individuals or businesses that are selling a service in order to persuade individuals to send them money.
Large banks and payment firms may incur substantial expenses as a result of the £85,000 reimbursement total. Nevertheless, it is less than the mandatory £415,000 reimbursement amount that the Payment Systems Regulator (PSR) of the United Kingdom had previously proposed.
The PSR withdrew its request for the extravagant maximum compensation payout in response to industry criticism. The Payments Association, a prominent industry body, emphasized that the financial services sector would be unable to afford such a sum.
However, the implementation of mandatory fraud compensation in the United Kingdom has raised concerns regarding the extent to which financial institutions are bearing the financial burden of assisting fraud victims.
Revolut, a digital bank headquartered in London, accused Meta on Thursday of failing to meet the necessary standards for combating global fraud. Earlier this week, the proprietor of Facebook announced a partnership with U.K. lenders NatWest and Metro Bank to exchange intelligence on illicit activity that occurs on its platforms.
Revolut’s chief of financial crime, Woody Malouf, stated that Meta and other social media platforms should contribute to the cost of reimbursing victims of fraud. He also stated that they have no incentive to take action due to their lack of obligation in this matter.
It is not novel for Revolut to advocate for large technology platforms to provide financial compensation to individuals who are defrauded by their websites and applications.
Proposals to establish liability for technology companies
For an extended period, tensions between banks and technology companies have been elevated. The escalating use of digital platforms to purchase products and make payments has resulted in a significant increase in online fraud over the past few years.
The Financial Times reported in June that the Labour Party had drafted proposals to compel technology firms to reimburse victims of fraud that originates on their platforms. It is uncertain whether the government intends to continue mandating that technology companies provide compensation to victims of APP fraud.
When CNBC reached out to a government spokesperson, comment was not immediately forthcoming.
Matt Akroyd, a commercial litigation lawyer at Stewarts, stated to CNBC that banks will receive an additional boost if their efforts to persuade the government to impose some regulatory liability on tech companies are successful, following their victory in reducing the maximum reimbursement limit for APP fraud to £85,000.
However, he also stated that the issue of which regulatory regime would be applicable to companies that do not actively participate in the PSR’s payment systems is complex, and it is unlikely that it will be resolved in the near future.
Banks and regulators have been advocating for increased collaboration between social media companies and retail banks in the United Kingdom for an extended period of time in order to address the rapidly expanding and ever-changing fraud threat. A significant request has been for the technology companies to provide more detailed intelligence on the ways in which perpetrators are exploiting their platforms.
In March 2023, regulators and law enforcement underscored the necessity for social media companies to take additional measures during an event in the U.K. finance industry that concentrated on economic fraud.
Kate Fitzgerald, the director of policy at the PSR, informed the event attendees that a significant portion of the fraud they encounter is attributed to social media platforms.
She also stated that regulators required “complete transparency” regarding the location of the fraud in order to determine the most effective place to concentrate their efforts within the value chain.
Another complaint from regulatory authorities at the event was that social media firms are not doing enough to combat and eradicate attempts to defraud internet users.
At the event, Rob Jones, director general of the National Economic Crime Centre, a unit of the U.K. National Crime Agency, stated, “The bit that’s missing is the at-scale social media companies taking down suspect accounts that are involved in fraud.”
Jones further stated that it was challenging to “overcome the inertia” at technology companies in order to “genuinely motivate them to take action.”
“Cross-industry collaboration” is promoted by technology companies.
Meta has refuted allegations that it should be held accountable for compensating victims of APP deception.
The social media titan stated in written testimony to a parliamentary committee last year that banks in the United Kingdom are “overly preoccupied with their endeavors to shift liability for fraud to other industries.” They also stated that this “generates a hostile environment that facilitates the activities of fraudsters.”
The organization stated that it can enhance its machine learning and AI detection systems and prevent fraud by utilizing live intelligence from major institutions through its Fraud Intelligence Reciprocal Exchange (FIRE) initiative. Meta urged the government to “foster additional cross-industry collaboration in this vein.”
The tech behemoth emphasized in a statement to CNBC on Thursday that banks, including Revolut, should consider collaborating with Meta on its FIRE framework to facilitate data exchanges between the firm and large lenders.
A spokesperson for Meta stated last week that FIRE is intended to facilitate the exchange of information among institutions in order to collaborate in the protection of individuals who utilize their services. “Fraud is a multi-sectoral issue that can only be resolved through collaborative efforts.”
Source : CNBC News
