Banks given fraud ultimatum

Friday, 1 March 2024

Commere and Consumer Affairs Minister Andrew Bayly says, ‘Bank processes need to be strengthened to give Kiwis better protections.’

Commerce and Consumer Affairs Minister Andrew Bayly says if banks don’t move quickly enough to do more to protect people from scams, the Government could step in to force them.

Bayly announced the Government’s response to last year’s report by Parliament’s finance and expenditure select committee into bank consumer protections against scams which called on banks to take voluntary steps to increase protections for their customers.

The committee recommended banks improve security by introducing a “confirmation of payee” system to check that bank account names and numbers match before allowing electronic transactions to go through, a key weakness in the banking system victims say would have prevented their losses.

The committee also urged banks to update their voluntary Code of Banking Practice, and investigate introducing a voluntary compensation scheme similar to the one in the UK, where banks have to compensate customers for scam losses unless they have been grossly negligent.

Bayly said he had written to the banks to outline his expectations, including that confirmation of payee be launched by banks this year.

If banks did not update their voluntary code, which is overseen by the Banking Association, he said he would consider options for a regulated, mandatory code.

Banks have been warned to update their systems, and pay compensation when they fail to spot warning signs one of their customers may be being defrauded.

“Banks have a duty to act with reasonable care and skill, which includes identifying and acting on possible signs of fraud,” Bayly said.

“Where you do not act on possible signs of fraudulent behaviour, or suspicious payments, in my view, you should reimburse customers.

“Bank processes need to be strengthened to give Kiwis better protections. A range of industry work is already underway, including establishing a confirmation of payee service, but there is more to be done.”

Bank of New Zealand is the only one of the big five banks to have been ordered to pay compensation to scam victims by the Banking Ombudsman in the recent wave of complaints to the scheme.

Bayly’s response has disappointed victims of scams, who are calling on it to immediately move to pass laws to force banks to compensate banks, and to reform the Banking Ombudsman.

“Banks should not have to do it voluntarily. They should be forced,” said scam victim Carla O’Neill, who was one of two scam victims to learn on Thursday that Bank of New Zealand would not oppose a Banking Ombudsman decision awarding them compensation for its failure to keep them safe.

“Banks should have had confirmation of payee in place five years ago,” she said.

Banking Association chief executive Roger Beaumont said: “Confirmation of payee will start to roll out by the end of the year, and our anti-scam centre is up and running, targeting money mules.”

And, he said: “Banks will investigate a voluntary reimbursement scheme for customers who lose money in an authorised payment scam. That may help inform any changes to the Code of Banking Practice which sets out current customer expectations for fraud reimbursement.”

Polling by Horizon Research shows the majority of people believe banks are not doing enough to protect customers from scams, and should compensate for scam losses.

Bayly was involved in creating the report as he was a member of the committee, which heard evidence from banks, victims, and Banking Ombudsman Nicola Sladden, who has called for more than a year for banks to deploy confirmation of payee, and dismayed BNZ by ordering it to pay $217,000 in compensation to a scam victim.

Since the select committee report was published in August, a lot has changed.

O’Neill is one of group of scam victims who have together been pushing for politicians to pass laws to force banks to better protect customers, and also to reform the Banking Ombudsman scheme, which O’Neill said “has no clout”.

Kiwibank chief executive Steve Jurkovich says New Zealanders may be losing more than $200 million annually to scams.

Media coverage of their experiences, including being unfairly blamed for their losses, has prompted the big five banks to create a plan to beef up anti-scam defences, including trying to establish a national anti-scam centre involving the bank, police, telecommunications companies and social media platforms.

They have also pledged to introduce a confirmation of payee system, though they have not announced when that would happen.

Pressure also came onto banks late last year as research revealed the huge scale of the scamwave targeting New Zealanders, with polling by Horizon Research last year suggesting as many as 270,000 people had been scammed to varying degrees in the past year.

The Ministry of Justice’s Crime and Victimisation Survey revealed the number of fraud and deception crimes last year had risen to 510,000 from 288,000 the previous year.

One in 10 adults said they had been a victim of fraud or deception. Two in every 100 said they had been victim of “cybercrime”.

The Ministry of Business, Innovation and Employment published figures from 11 large financial services companies, including banks, that nearly $200 million a year is being lost to scammers, but Steve Jurkovich, chief executive of Kiwibank said it could be substantially more.

Jurkovich revealed said the chief executives of the big five banks were meeting fortnightly to talk about fighting scams.