The rise of all types of financial fraud has caused the Government and the Regulators to take a number of steps in an attempt to address the escalating financial burden of scams. The Treasury estimated in 2020 that the cost of money laundering and terrorist financing to the economy was £37 billion per year. The UK is at the forefront of tackling money laundering and terrorist financing globally according to the Financial Action Task Force ("FATF") which leads the global battle to tackle money laundering and terrorist financing.
There are many aspects to online fraud, including inadvertent contributors and facilitators, such as banks and financial institutions and social media platforms. These organisations are not directly complicit but often by reason of omission or poorly thought out safeguarding procedures resulting in delays that allow wrongdoers to perpetrate their fraudulent activities. Clearly, a key factor in preventing online fraud are the actions that High Street banks are able to take when suspicions are aroused. There is also a level of responsibility resting with social media platforms through which many of the fraudsters first make contact with their victims.
Demetri Bezaintes, an associate, commented "social media platforms have previously exhibited a reluctance to police their platforms and take down sites that are potentially harmful. However, as the instance of financial fraud is becoming overwhelming and many wrongdoers seek victims through social media to perpetrate romance fraud or offer investment opportunities that are financially impossible to believe, the platforms must now take some responsibility" Demetri further pointed out "banks have a duty to their customers to take all possible steps to protect their customers from financial fraud. Without a comprehensive effort by all parties that have the opportunity to assist in preventing financial fraud, it will simply escalate to far higher levels. The recent sanctions applied against Starling Bank should act as a deterrent and focus the attention of banks and financial institutions on maintaining strict controls"
The Financial Conduct Authority ("FCA"), the financial industry watchdog, reviewed financial crime controls of the challenger bank Starling and found them "...shockingly lax..." stating that this left the bank's financial system "...wide open to criminals and those subject to sanctions...". As a result, the bank has been fined £29 million having narrowly avoided being fined £41 million by agreeing to resolve its deficiencies, thereby qualifying for a 30% discount.
The rapidly growing bank failed to ensure that its measures to tackle financial crime kept pace with its speed of growth. The bank failed to make the rigorous checks on new customers, which was a requirement to prevent fraud and opened accounts for 49,183 high risk customers, granting criminals access to the financial system. Following on from the eye-watering fine, another sanction that the bank must now observe is a restriction on opening new accounts to perceived high risk customers until there is improvement
The speed that the fraudsters are able to appropriate the victims' funds, once they have persuaded their target that they should hand their hard-earned money to them, is one of the major issues. Banks and financial institutions have very little time to act, should they have reservations about a transaction. The Online Safety Act 2023 has lengthened the time that the banks can review a suspicious transaction. Previously, transactions had to be completed or rejected by the end of the working day. The extended period of time enables further enquiries to be made into the provenance of the suspected wrongdoer.
Reported in the FT Advisor, at the FCA International Capital Markets Conference 2024, two days ago in London the FCA's CEO, Nikhil Rathi stated that the finance sector should recognise that regulation had a vital role and that volatility was a constant. He suggested that future approaches to govern the rise in financial fraud should shift the focus from reactive to proactive. He further commented "...the goal of regulation shouldn't just be to step in when things go wrong, or respond to a crisis [...] not just rules for the sake of it."
The Online Safety Act 2023 also imposes a duty of care on the social media platforms towards their users. Meta, the owner of Facebook, Instagram and Whatsapp, has developed the first information sharing programme, the Fraud Intelligence Reciprocal Exchange ("FIRE") which enables the sharing of intelligence when acting in partnership with banks and financial institutions. This facilitates the apprehension of the scammers and prevents customers from incurring financial losses, thereby protecting bank customers.
National Westminster and Metro Bank are participating in a pilot welcomed by front line organisations such as the City of London Police and the National Economic Crime Centre.
Nathaniel Gleicher, Global Head of Counter-Fraud at Meta said "...We will only beat these criminals if we work together and share relevant information related to scams. Financial institutions can share unique information with us which we can in turn use to train our systems to take action against more scams globally." Both banks stated that working together and collaborating with a cross-industry approach could lead to the faceless online fraudsters being apprehended and will considerably strengthen fraud detection capabilities. The six-month pilot, facilitated under the cross-collaborative umbrella of Stop Scams UK, has so far removed approximately 20,000 accounts detected as being run by scammers.
Giambrone and Partners banking and financial fraud lawyers support the efforts made by organisations involved in developing threat programmes that are shared and can be accessed and acted on by banks and social media platforms but there may be some way to go before the ever agile wrongdoers can be comprehensively defeated.
Demetri Bezaintes is an associate based in the London office within the Financial Services and Crypto Litigation Department. He is an SRA-regulated Registered Foreign Lawyer (RFL) in England & Wales and a qualified Greek Lawyer (dikigoros).
Demetri has a thorough knowledge of investment fraud and fund tracing. He works tenaciously for our clients, advising on cryptocurrency, Forex trading disputes and regulatory investigations. He draws his expertise in investment law from his experience in the banking sector and his experience in banking and financial services regulation. Prior to joining Giambrone & Partners Demetri worked at an international bank, where his main focus was the enforcement of freezing orders and third-party debt orders.
He approaches cross-border jurisdiction matters with a comprehensive view, based on his knowledge of both civil and common law. After qualifying as a lawyer in Greece, he obtained a Graduate Diploma in Law from the University of Westminster.
Demetri also has experience of assisting high net worth individuals (HNWI) with real estate transactions arising from the Golden Visa scheme.
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