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Social media groups must do more in the “war of attrition” against financial fraud on their sites, the UK payment regulator has said, adding ministers should consider making platforms liable for compensation to victims.
David Geale, interim managing director of the Payment Systems Regulator, told the Financial Times that a new “world-first” scheme forcing banks to reimburse victims was only the latest step in a “constant fight” against fraudsters.
“I do think there is more that can be done around the point of origination in particular — that is social media, telcos and the internet more generally,” Geale said. “It’s a war of attrition . . . it’s got to be a whole ecosystem approach.”
Geale’s comments come after the regulator last week introduced rules to make payment providers liable for losses to authorised push payment (APP) fraud, where victims are tricked into sending money from their bank account, up to £85,000.
He said that introducing a levy on tech groups, forcing them to pay for the impact of scams or to fund law enforcement efforts, would be “very complicated”, but it was “one of the options that should be considered” by the government.
Labour earlier this year drafted plans to force tech companies to “take their proper share of the responsibility” for tackling fraud and reimbursing victims.
UK bank TSB said last year that 80 per cent of all cases in its three main fraud categories originated from one of Meta’s social media services, including Facebook, WhatsApp and Instagram. Trade body UK Finance found 76 per cent of push payment fraud starts online.
Geale said the PSR would publish data later this year on the origin of payment scams. “It will show there is a lot of fraudulent activity that comes through social media,” he said, adding “everyone should have the responsibility to stop the fraud happening in the first place”.
He welcomed Meta’s plans to expand a partnership with banks to share transaction data in an effort to prevent scams, announced this month, as a sign that social media groups were “coming to the party, to a certain extent”.
But he likened the problem to “whack-a-mole”, as fraudsters that are blocked on one site “keep popping up” elsewhere. Tech groups and banks sharing data with law enforcement would help to take criminals “out of the system altogether”, he noted.
Britons lost £460mn to APP fraud last year, according to UK Finance. Some 70 per cent of this involved goods that were 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 by the payment industry, which argue that high compensation costs risk forcing some of the smaller fintechs out of business.
After a backlash from former City minister Bim Afolami and the finance industry, the PSR slashed the compensation limit from £415,000 to £85,000 just weeks before the policy was implemented.
However, Geale, who is also the former Financial Conduct Authority’s director of retail banking, rejected the idea that the PSR’s U-turn came from political pressure, saying the decision had been based on evidence that the limit of £85,000 covered most APP claims.
“We had people wanting a limit of £30,000, we had people wanting no limit. We felt it was important to act to set the limit at £85,000 following through on our commitment to the pre-implementation review,” he said, adding that it had been “a finely balanced” decision “driven by the data”.
Geale stepped in as interim head of the regulator in June after his predecessor quit amid a row with the previous Conservative government over its attempts to force banks and companies to reimburse fraud victims.
Critics of the regime say it could pave the way for a spike in complicit fraud, with fraudsters posing as victims or using mules to file fake compensation claims.
Geale said that payment firms were able to charge an “excess” of £100 to customers to deter complicit behaviour. But he expressed little sympathy with concerns that compensation costs could push smaller fintechs out of business.
“What can’t happen is allowing fraud and banking fraudsters as an acceptable cost of business,” he added.
The PSR has committed to a formal review of the new regime a year after its launch. Geale said it would be judged on whether it has reduced fraud claims and increased the proportion of customers who are compensated without appealing to the Financial Ombudsman Service.
“I would like to see an increase in controls in particular at fraudsters’ banks and to see fraudsters exiting the market,” he said. “If we see problems emerging we can act and change things before a year is up.”