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Fraud epidemic: antidote urgently required

There aren’t many things Britain is truly “great” these days. Still, there is a part of the fast-moving fintech economy where the UK is the undisputed global leader.

Unfortunately it is fraud.

Criminals defrauded UK bank customers for a record £1.3bn in 2021 figures published this week by UK Finance.

The UK is experiencing an “epidemic of fraud,” the trade association says, warning that “cooperation” between financial firms, internet giants and telecoms is the only way authorities stand a chance of regaining control.

These numbers may not surprise you. About 40 min British adults have been the target of scammers so far this year – that’s about three quarters of the population. Spotting dodgy posts before you click on them could be our national sport.

And especially for the current government, fraud appears to be a blind spot. After being scammed out of billions via fraudulent loan applications at the height of the pandemic, the Prime Minister was recently accused of airbrush fraud from the crime figures.

Fraud accounted for 39 percent of all crime in 2020-21, according to the Bureau of National Statistics† And it gets worse. Globally, the UK has the biggest overall problem with online fraud relative to its size.

Why? An English-speaking population, widespread adoption of online banking and our faster payment system are the “holy trinity” for organized criminal gangs, who can quickly route stolen money across international borders. This makes it more difficult and labor intensive for the UK’s myriad crime-fighting agencies to catch up with them.

Now that the pandemic has pushed even more of our daily lives online, it has become much easier for these tech-savvy criminals to attack the weakest link in the chain: people.

According to UK Finance, bank customers were tricked into authorizing around £583 million in payments in 2021 – a whopping 39 percent more than the previous year. Still, I fear that the figures for 2022 could turn out even worse when you add the cost of living.

Emotional manipulation is the main tool of the scammers to extract money; fear and greed are at the top of their playbook. As millions of Britons struggle to stay on top of their finances, or seek better returns on their savings, the opportunities to exploit the desperate are growing sadly.

In 2021, investment fraud was one of the biggest drivers of the spike in “authorized” payments, accounting for nearly a third of total losses, with the promise of high returns that would lure potential victims.

UK Finance says the scammers are well aware of how pension freedoms have given over-55s access to huge sums of money. Add to that an estimated “advice gap” of 13 million people who can’t or won’t pay for financial advice, and you have a sedentary target.

The average loss per victim of investment fraud last year was over £14,000. These scams usually come from cold calls, but also include fake online advertisements promising high returns on fictitious investments, cloned websites, social media approaches, and even old-fashioned letters through the mail.

In all cases, the “opportunity” is limited in time and victims will be pressured to act quickly or lose. Sometimes victims are persuaded to put in more money after seeing a “return” on their initial investment.

The other huge increase was impersonation scams. Ironically, these are often based on our fear of falling victim to online fraudsters.

In 2021, around £137 million was lost to scams where criminals posing as bank staff or police convinced customers to transfer money to so-called “secure accounts” – a 51 percent increase in a year.

A further £77m was lost to scammers posing as employees of utility companies, HM Revenue & Customs, the NHS or other official bodies who used the threat of fictitious fines or outstanding debts to obtain payments.

You’d think you’d be too smart to fall for this, but UK Finance warns that criminals are investigating their targets using information gathered from social media profiles, data breaches and past scams.

That’s right—those fake text messages urging us to sign up for energy utilities, take money off our groceries, or pay for missed parcel deliveries give criminals enough data to gain our trust—then clean us up.

To give banks and card companies some credit, the combination of algorithms and ingenuity (such as the Banking protocol initiative between police and frontline bank staff) meant they managed to detect and prevent around £1.4 billion in fraud last year.

UK Finance believes the economic crime law announced in the Queen’s Speech could also help by giving banks the ability to “delay faster payments” if fraud is suspected.

But how the banks deal with victims of crime leaves much to be desired. Most signed up for a “no mistake” code in 2019, promising to repay the “innocent victims” of fraud — a judgment some don’t seem to be able to make.

Of the £583 million lost to authorized fraud last year, around £271 million – 46 per cent – ​​has been paid back to victims under the code.

If your bank hits you back, consumers can escalate complaints to the Financial Ombudsman Service, which this week has a 20 percent annual increase in such cases.

Currently, the ombudsman is rejecting banks’ decisions not to reimburse in about 75 percent of cases – an unacceptably high number – but the huge backlog of fraud causes means it takes nine months for complaints to be filed.

The Financial Conduct Authority’s “consumer duty” and the tightening of payment laws could help in the future. But why should banks be the only ones prone to fraud?

“Major online platforms – search engines, social media and shopping sites – are the gateway to almost all online activity and they should be a fraud barrier, not a channel,” said Katy Worobec, director of economic crime at UK Finance.

The upcoming online safety law will legally require the biggest platforms to monitor fake ads, but until social media sites are forced to share the huge cost of compensating victims, I doubt it will have much of an impact.

Other campaign groups, including the Social Market Foundation, make a strong case to reform the way fraud is tackled and increase police resources.

Still, Mark Shelford, the police chief for economic and cybercrime, recently told the FT that education is the most cost-effective way to fight fraud. He has a point.

I’m not talking about the increasingly retarded messages banking apps display when you transfer cash, but rather a decent public awareness campaign like the FCA’s brilliant PPI reclaim ads starring Arnold Schwarzenegger.

If Arnie can’t end the crooks, then I don’t know who can. And the social media platforms and search engines should be forced to show the ads for free.

Claer Barrett is the consumer editor of the FT: claer.barrett@ft.com† Twitter @Claerb† Instagram @Claerb

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