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Social media groups must do more in the ‘war of attrition’ against financial fraud on their sites, the UK’s payments regulator says. Ministers should consider making platforms liable for compensation to victims.
David Geale, interim chief executive of the Payment Systems Regulator, told the Financial Times that a new “world-first” scheme forcing banks to pay back victims was just the latest step in an “ongoing battle” against fraudsters.
“I think more can be done around the origin point in particular – which is social media, telecom companies and the internet in general,” Geale said. “It’s a war of attrition. . . it has to be a whole ecosystem approach.”
Geale’s comments come after the regulator last week introduced rules to hold payment providers liable for losses from authorized push payment (APP) fraud, where victims are tricked into sending money from their bank accounts, up to a maximum of £85,000.
He said introducing a levy on tech groups that would force them to pay for the consequences of scams or fund law enforcement efforts would be “very complicated” but that it was “one of the options to be considered by the government be taken”.
Labor earlier this year laid out plans to force tech companies to “take their own share of responsibility” for tackling fraud and compensating victims.
British bank TSB said last year that 80 percent of all cases in the three top fraud categories came from one of Meta’s social media services, including Facebook, WhatsApp and Instagram. Trade body UK Finance found that 76 percent of push payment fraud starts online.
Geale said the PSR would publish data on the origins of payment fraud later this year. “It will show that there is a lot of fraudulent activity happening through social media,” he said, adding that “everyone should have the responsibility to stop the fraud in the first place.”
He welcomed Meta’s plans to expand a partnership with banks to share transaction data in a bid to prevent scams. The plans were announced this month as a sign that social media groups were “coming to the party to some extent.”
But he likened the problem to “whack-a-mole,” as fraudsters blocked on one site “pop up” elsewhere. Technology groups and banks sharing data with law enforcement agencies would help criminals get “completely out of the system,” he noted.
According to UK Finance, the British lost £460 million to APP fraud last year. About 70 percent of these were goods ordered online but not received.
This is “a lot of money affecting a lot of real people,” said Geale, who called the losses “devastating” in terms of both financial and mental impact.
The new reimbursement rules follow an intense lobbying campaign from the payments industry, which says high compensation costs risk putting some of the smaller fintechs out of business.
Following a backlash from former minister Bim Afolami and the financial sector, the PSR reduced the compensation limit from £415,000 to £85,000 just weeks before the policy was implemented.
However, Geale, who is also director of retail banking at the former Financial Conduct Authority, rejected the idea that the PSR’s U-turn was due to political pressure, saying the decision was based on evidence that the £85,000 limit would prevent most APP claims covered.
“We had people who wanted a £30,000 limit, we had people who didn’t want a limit. We felt it was important to take action and set the limit at £85,000, following our commitment to the pre-implementation assessment,” he said, adding that it was “a balanced” decision “driven by the data”.
Geale took over as interim head of the regulator in June after his predecessor resigned amid a row with the previous Conservative government over its efforts to force banks and companies to pay back fraud victims.
Critics of the regime say it could pave the way for a spike in complicit fraud, where fraudsters pose as victims or use mules to make false compensation claims.
Geale said payments companies could charge customers a £100 ‘deductible’ to discourage complicit behaviour. But he showed little sympathy for concerns that compensation costs could drive smaller fintechs out of business.
“What cannot happen is allowing fraud and bank fraudsters to be an acceptable cost of running a business,” he added.
The PSR has committed to formally reviewing the new scheme one year after its introduction. Geale said it would be judged on whether it has reduced fraud claims and increased the proportion of customers compensated without recourse to the Financial Ombudsman Service.
“I would like to see controls tightened, especially at fraudsters’ banks, and fraudsters leaving the market,” he said. “If we see problems emerging, we can take action and change things before the year is out.”