‘Explosive’ advice to banks from ombudsman

Thursday, 25 January 2024

Banking Ombudsman Nicola Sladden is now considering making public the ‘practice notes’ she prepares for banks.

A secret communique sent to banks by the Banking Ombudsman contains “an abundance of clarity” that banks have fallen short on protecting customers from falling victim to investment scams, says banking expert Janine Starks.

Ombudsman Nicola Sladden sent a “practice note” on fraud to banks in October, but it was not published on the public section of the ombudsman website.

The practice note is ostensibly a guide to how the ombudsman investigates fraud complaints from the public, but it contained what retired banker Starks called “explosive” revelations that the ombudsman had alerted banks to fake term deposit scams in March last year..

In the note, Sladden said in March she had recommended banks provide “clear warnings to customers considering transferring funds for a term deposit”, provide training scripts to frontline staff, and review warnings on their websites, internet banking and app pop-ups.

Starks, who has been helping scam victims fight for compensation, said she had seen no evidence of banks following these recommendations, despite fraud levels reaching epidemic proportions.

Sladden said she could not comment on whether she thought banks had followed her recommendations, or whether banks that had failed to do so were failing to provide banking services with a reasonable level of care and skill.

Retired banker and businesswoman Janine Starks says the country is engulfed in a wave of scam and fraud.

The note said the Banking Ombudsman scheme, which hears complaints about banks from their customers, could rules banks liable for scam victims’ losses in cases where banks had failed to provide services with reasonable care and skill.

“We’re currently investigating some important and significant investment scam cases, and I can’t pre-empt the outcome of those by sharing our views on particular scenarios that are very similar,” Sladden said.

Sladden said she would consider publishing the practice notes she sent to the banks for the public to see.

Starks said “any bank demonstrating a duty of care and skill would read these recommendations from the Banking Ombudsman and implement them.”

“In my view banks have nowhere to hide given the abundance of clarity from the Banking Ombudsman. I have seen no evidence of the online banking screens being changed, to ask if the payment is for an investment, apply intervention when it is, or provide links to known investment scams. The basic international practice of ‘stop, challenge, protect’ is nowhere to be seen.

“The fact is, the ombudsman even tells banks to use ‘pop up warnings’. That doesn’t mean hiding the information on a separate menu somewhere in a website or on an app. They are being told this is so serious we expect you to have it right in the customers face, while they are making the payment.”

Scam victim Borja Ares said the ombudsman had divided investment scam victims into two groups – those scammed before the March warnings to banks, and those scammed afterwards.

He was scammed in May, after the ombudsman’s March recommendations to banks.

‘The only thing that can give me a modicum of comfort is some semblance of justice,’ says scam victim Borja Ares.

Ares said he received no warning from Bank of New Zealand despite telling it that he was investing his money with Citibank, which was a known scam at the time.

“We are still waiting for the ombudsman to say something,” he said. “It is taking ages.”

“I have not lost all hope,” Ares said.

Starks, who is a columnist for Stuff, said “I’m extremely angry these fake term deposit cases have taken so long to receive reimbursement or that many even reached the ombudsman’s office, given the banks knowledge of this Fraud Note from the ombudsman.”

“Banks were clearly on notice of many scams prior to March last year via public warnings from the Financial Markets Authority and had full knowledge they were operating outside of international practices with inadequate technology,” she said.

“Now we find out the situation is even more explosive and they have ignored recommendations from the Banking Ombudsman, 10 months ago to provide clear warnings to anyone transferring funds for a term deposit,” she said.

The banks said they took customer security seriously, and had a range of measures to reduce the change of their customers falling foul of investment scams, though it did not appear any had implemented all of the ombudsman’s recommendations.

Sladden said part of her job was encouraging banks to improve their systems and services, and had supported the urgent introduction of confirmation of payee checks.

After a storm of criticism, banks have promised to develop a confirmation of payee system, but have given no timeline for bringing it in.

Starks has been a leading critic of bank systems, including their failure to put in place “confirmation of payee” systems, which alert customers when the name and number of an account to which they are trying to send money do not match.

Several scam victims have said they believe they would have been alerted had such a system been in place.

Starks said Payments NZ trialled a confirmation of payee system in 2018, but it did not go beyond the trial.

“Banks now say Confirmation of Payee is on the way, but there’s no dates, targets or information on trials,” she said.

“We’ve asked the banks to go further and faster in relation to fraud and fraud prevention mechanisms,” Sladden said.

The last Labour government declined to get involved, but Sladden called on the Government to act.

ANZ is planning on introducing biometric protections which will analyse customers’ typing patterns to identify whether it really is them making a transaction.

“Some of these changes require legislation. We can’t mandate certain systems. It’s beyond our power. If it’s not going to be self-regulation it needs to be mandated,” she said.

Banks’ defend their anti-fraud systems

Here’s how ANZ, BNZ, Westpac and Kiwibank responded to inquiries on whether they had implemented the ombudsman’s March recommendations that they provide “clear warnings to customers considering transferring funds for a term deposit”, provide training scripts to frontline staff, and review warnings on their websites, internet banking and app pop-ups.

ANZ: “We take protecting our customers seriously. We use many mechanisms to stay up to date with current scams, including communications from agencies like Cert NZ, FMA, police and other government agencies, industry forums, and media reports, as well as the insights BOS shares.

“We carefully consider how we bring information about scams to the attention of customers, as unfortunately these often evolve and change rapidly. Our website includes a range on information on avoiding fraud and scams and includes a ‘current scam’ alert page, which includes a warning of the term deposit scams you mention in 2023.

“We also post to our social media accounts and include in-channel alerts in ANZ Internet Banking and goMoney where appropriate. Our CEO wrote to customers in December with some tips to help protect against scams and in 2023 we held numerous education seminars around the country with personal and business customers and members of the public to help spread general awareness and we will continue to do this.

BNZ has been circulating weekly scam updates to staff.

“We invest a significant amount of effort into training and resources to help staff with all customer interactions, including on scams. We believe continuing education and awareness for our staff and our customers can make a difference in stopping people from being scammed.”

Kiwibank: Enterprise operations general manager Justine Hastings, said in March the bank had already been implementing the protections the ombudsman recommended.

“We do in-app alerts, we have updated our website to ensure information is clear on frequent scam, we have gone out to the public for general awareness on a variety of different platforms including media responses, podcasts and social media.

“We use both internet banking pop-ups and in-app messaging.

Westpac does not have in-app pop-up fraud warnings.

“Our frontline staff are equipped with information to help customers in the first instance, however we also have a dedicated customer protection team who specialise in helping customers in this space.”

BNZ: “At BNZ, we take our obligation to protect our customers from scams and fraud seriously. We have a dedicated fraud protection team working 24 hours a day, 365 days a year to protect our customers, we invest heavily in fraud protection technology, and we work closely with a range of public and private sector stakeholders, including the Banking Ombudsman, to strengthen scam and fraud protections.

“In line with the ombudsman’s advice, we have taken a range of steps to inform our customers of the risks posed by investment and term deposit scams, including issuing in-app alerts, publishing warnings on our website, and sharing warnings and information through our social media channels.

“In addition, BNZ circulates weekly updates on emerging investment scams to staff, and additional training has been provided to our frontline call centre staff to upskill them on dealing with potential scams, so that they can better identify if a customer may be falling victim.

But, the spokesperson said “ultimately, the best defence against scams is in the hands of New Zealanders as all scams require people to do something – whether that’s clicking on a link to provide more information, engaging in a conversation, or sending money.

“If people know what to look for, and can recognise the signs of a scam, they’re less likely to fall victim. Scammers rely on people not picking up on the red flags.”

Westpac: Peter Barnes, head of enterprise customer care operations, said “we incorporated the Banking Ombudsman’s feedback into the action we were already taking, such as regular warnings to customers via our website, social media channels and a direct email from our CEO to customers in 2023 with advice on how to avoid scams.

“We have warnings within Westpac One online banking including on the home page, and more recently, within the ‘create a payment’ page, however we do not have push notification or pop-up warnings.

“We invest heavily in training our staff to combat scams, including providing talking points on specific fraud and scam scenarios. As such, we had raised the prevalence of investment scams to our staff about two weeks before the banking ombudsman alert.

“We are committed to protecting our customers from fraud and scams and continue to invest in cutting edge technologies including biometrics and machine learning.”