The Facts

In a case study reported in 2016 by the UK Financial Ombudsman, an investor in the United Kingdom, "Ms Q", had her emails hacked by fraudsters, who impersonated her and sent emails purporting to be from her to her financial adviser.

Large sum transferred following receipt of emailed instructions

The emails asked the financial adviser to withdraw £250,000 from her investment bond and transfer the money to a solicitor's bank account in Hong Kong. However, the investment provider told the financial adviser that they could not trace the solicitor's firm and so would not be transferring money to that account.

The financial adviser then received a follow-up email purporting to be from Ms Q which provided details of a bank account in her name with a bank in the United Kingdom. The email instructed the financial adviser to transfer £250,000 to this bank account.

At this stage the investment provider pointed out that the bank account details were different to the ones they had on file for Ms Q. However, the financial adviser confirmed that the new bank account details were correct and finalised the transfer of the money to that account.

Investor realises her emails have been hacked

The investment provider then sent a letter to Ms Q, confirming that the £250,000 had been withdrawn and transferred to the new bank account in accordance with her instructions.

This was the first that Ms Q had heard of the transaction. Understandably, she was aghast and rang her financial adviser, who explained that he had completed the transaction in accordance with the instructions he had received from her via email.

Ms Q realised that her email account must have been hacked, so the financial adviser had been receiving emails which came from Ms Q's email address but which she had not actually sent.

Investor recovers some, not all of her money

After Ms Q reported the fraud to the police, she managed to recover around £170,000, leaving her with a shortfall of £80,000. Ms Q asked the financial adviser to make up this shortfall, arguing that it should have taken better care of her money.

When the financial advisor offered to pay only a quarter of the money that Ms Q had lost, the case ended up before the UK Financial Ombudsman, which had to determine whether the financial adviser was responsible for Ms Q's loss.

case a - The case for the financial adviser

case b - The case for Ms Q

  • We had no way of knowing that the emails we were receiving from Ms Q's email address had not actually been sent by her.
  • It was not unusual for us to receive emails from Ms Q. She had been emailing us around the same time about arranging a mortgage, so the emails asking us to transfer money to another bank account did not give us any cause for suspicion or concern.
  • Ms Q had worked in Asia in the past, so it would not have been unreasonable for her to have a bank account in Hong Kong.
  • It was not our email account which was hacked by fraudsters – it was Ms Q's. We can hardly be held responsible for her email security but have nevertheless offered to pay a quarter of the sum that Ms Q has lost.
  • I had used the same financial adviser for more than ten years and always had a face-to-face meeting when I wanted to discuss my investments.
  • The financial adviser was informed by the investment provider that they could not trace the firm of the Hong Kong solicitor to which the money was initially meant to be transferred. This should have alerted the adviser that something was wrong.
  • The financial adviser should have called me to confirm the instructions they received by email prior to transferring such a large sum of money.
  • I had entrusted my money to the financial adviser who should have taken better care of it. The advisor should reimburse me the full £80,000 that they transferred to a fraudulent account, not merely a quarter of this sum.

So, which case won?
Cast your judgment below to find

Vote case A – the case for the financial adviser
Vote case B – the case for Ms Q

Clayton Davis
Business disputes
Stacks Law Firm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.