October 2019 | Technology

Steve Goodall: Ignorance is no defence in the eyes of the law

Steve Goodall is chief executive at ULS Technology

According to UK Finance, last year the advanced security systems and innovations in which the finance industry invests to protect customers stopped more than £1.6bn of unauthorised fraud.

But despite this, criminals successfully stole £1.2bn through fraud and scams in 2018.

Much of the money was lost through authorised push payment fraud. This type of fraud has emerged relatively recently as more banking has transferred from branch to online and the human checks and balances were reduced.

This type of scam sees unwitting bank customers authorise the transfer of funds from their accounts to legitimate bank accounts which are nonetheless, not the accounts they claim to be.

Once the transfer is made, these accounts are then swiftly emptied and immediately closed by scammers, who can disappear over the horizon with the customer’s cash having secured it in what looks like a perfectly legal transaction.

The rub is that these scam account details are given by fraudsters posing as legitimate businesses and individuals – often companies with which the customer is actually doing business.

Scammer confidence

While the sorts of cases we read about most frequently in the news tend to relate to older customers transferring sums in the region of £3,000 to £10,000 to scammers claiming to have provided ‘cleaning services’ or ‘home repairs’, increasingly scammers are getting braver, posing as pension advisers and solicitors.

In the property world, authorised push payment fraud really hurts customers and solicitors will know only too well that the threat of emails being hacked and accounts hijacked is an increasing worry.

Many firms now include default warnings within the bodies of their emails in an attempt to protect customers from changing bank details when they transfer house purchase deposits, stamp duty and legal fees at completion.

It is better than nothing but it remains woefully inadequate as a preventative measure in the fight against fraud of this type – email hacks are notoriously easy and far too few firms have the level of cyber security in place to provide 100% peace of mind to customers and lenders.

Voluntary code

Earlier this year, significant progress was made to protect customers falling foul of these scams. Following collaboration between the industry, consumer groups and the regulator, a new authorised push payment scams voluntary code was published and implemented from May.

While many lenders have committed to repaying customers who lose money to authorised push payment fraud, consumer group Which? recently highlighted that around half of the UK’s banks and building societies had still not signed up to the code by the end of August, presumably at least partly driven by the commercial implications of agreeing to reimburse monies lost to scammers which is almost impossible to trace once it has moved through enough accounts and out of the purview of British and European regulators.

The cost of property fraud is significant. According to a freedom of information request submitted by ABC Finance to the Land Registry, there have been 678 claims for property fraud over the past 14 years.

The total pay-out across England and Wales has been £73.3m, with individual claims coming in at an average of £107,669.

Professional indemnity

While not all of these will have been push payment frauds, some will have. It’s likely that these scams will make up an increasing proportion of property related frauds in the future.

Solicitors’ professional indemnity premiums already reflect that growing risk. Lenders are also acutely cognisant of the dangers of money going missing in this type of instance where they have committed to reimburse authorised transfers to scammers.

It is therefore amazing to me that so many firms continue to act as though this risk is one that affects others in the market, without taking truly preventative action to protect their clients. At best, this is lazy and poor practice; at worst, it could be argued as negligence.

There are solutions available that can mitigate these risks however and save both solicitors and lenders money and agro in terms of managing property transaction communications, data security and compliance.

Yes, we provide one – DigitalMove is a one stop shop platform providing all of this to both lenders and solicitors – but we are not the only ones in the market making strides towards a better protected customer.

Full scale

While clearly we want to be the provider of choice when it comes to secure transaction services, I’m also hugely supportive of others in the industry working just as hard towards achieving the same goal. Fraud has long been one of those things that lenders and solicitors alike have felt necessary to sweep under the carpet, believing that admitting its full scale would be to admit failure.

But fraud is too big an issue affecting too many lives to be ignored. The tide of public opinion is shifting away from blaming financial services and towards understanding how clever many of these scammers really are.

We have an opportunity to support that shift and use it to restore some faith in banks and building societies, many of which are still suffering in the aftermath of the financial crisis a decade ago.

We’ll also save ourselves and our customers some money in the long run. Surely that’s worth the investment?