Here, banks are responsible for compensation for fraud

Telephone fraud is also a scourge in the UK and was estimated by the British Bankers’ Association to cost close to £500 million last year.

Caroline Wayman is currently a financial expert at PA Consulting, but was previously at the Financial Ombudsman Service. During her tenure, she was involved in the early stages of developing a regulatory framework for the relationship between customers and companies in the financial sector, and she now advises firms on its implementation. It’s called the Consumer Duty and came into force last year, with further deadlines coming up this summer.

This means, simply put, that companies must put the interests of the individual customer at the centre.

“On the surface, it may seem like a no-brainer, but it has strengthened protection and led to a shift in that UK banks and other financial institutions need to be more proactive,” says Wayman.

“Perhaps the most important thing is that they must be able to identify ‘foreseeable damage’. So it’s not okay to wait for the injury to happen. They must have control systems that enable them to act to prevent foreseeable harm, she adds.

This, in turn, means that the company must understand what the customer needs and what financial damage they may suffer.

The consumer duty is the standard by which regulators will measure how they live up to their responsibility to protect the customer. The Payment Systems Regulator (PSR) outlined additional consumer protections against authorised push payment (APP) fraud, which will come into force on 7th October 2024. And firms risk sanctions if they can’t live up to the standard.

“There will be a cap on compensation of £415,000,” Wayman said.

“And there will be two exceptions: if the customer has behaved fraudulently or shown gross negligence,” she adds.

However, Wayman wants the focus to be on preventing crime, rather than the right to compensation. This leads her to call for more of what she describes as “friction” in the payment system.

“We all want quick and easy payments to be able to make quick transfers to the kids or whatever, but that has to be balanced against security,” she said.

This could mean the bank may contact a customer to ask if they really want to carry out a certain transaction; that there is time for reflection.

“I think most of us would probably like a little bit of friction, a little bit of control, especially when it comes to big payments,” she adds.

She also emphasises the importance of balance when it comes to responsibility. Both the customer and the company are responsible for security.

“Ultimately, it is our customers’ confidence in their financial products that makes us a thriving financial sector,” says Wayman.

“Having a mechanism that allows customers to express their concerns and to have adequate protection in the system is one way to create this trust,” she concludes.