ASB technology and operations executive general manager David Bullock explains how a common phishing scam works.
Video / Dean Purcell
The banking sector has launched a breakthrough review of rules governing when scam victims are reimbursed following widespread criticism of its deficient consumer protections and the threat of regulatory intervention from Government.
Consumer NZ boss Jon Duffy - who is also a board member on the Banking Ombudsman Scheme - says those rules are skewed in favour of banks in authorised fraud cases, protecting the financial giants while failing vulnerable consumers.
He says the Code of Banking Practice - drafted by the sector - is letting banks get away with “substandard” fraud protection systems while scam victims bleed hundreds of millions of dollars each year.
“These rules were written some time ago and clearly have not kept up to date with the volume and sophistication of the fraud threat that New Zealand bank customers face. They clearly need to be updated because they’re failing.
“The rules that the Banking Ombudsman is forced to work within are protecting the banks and letting them get away with having substandard fraud prevention systems.
“This is why the Banking Ombudsman and many others are pushing for a review of the rules and pushing for mandatory fraud prevention elements ... to force the banks to up their game.”
Duffy spoke to the Herald following the release of a slew of Banking Ombudsman decisions declining compensation to victims of elaborate investment frauds and ruling in favour of banks.
He believed the outdated Code of Banking Practice was constraining the Banking Ombudsman’s decision-making process.
There has been growing criticism of retail banks’ lack of consumer protections, what’s seen as a toothless banking regulatory regime and ineffective complaint process for fraud victims.
Victims claim the Banking Ombudsman Scheme is weighted heavily in favour of banks. They question its independence given two of its five board members are CEOs of major banks and the sector’s role in drafting current rules.
Auckland businessman Deepak Udhani lost $100,000 in an elaborate investment scam. He says banks are failing to protect customers. Photo / Jason Oxenham
A recent decision declined reimbursement to scam victim Deepak Udhani, who lost $100,000 in a fake BNP Paribas bond investment scam that had already been subject to an FMA public warning.
Udhani wrote the French company’s name as the intended payee on his ASB online money transfers. But ASB argued the reference field was only for customer convenience and not checked by the bank’s fraud detection systems.
Banking Ombudsman Nicola Sladden found that under current rules, banks had no obligation to monitor customers’ transactions for fraud and couldn’t be “compelled” to monitor for references to known scams.
‘Clearly not doing enough’
Duffy said the Banking Ombudsman fraud reimbursement rules “are clearly not doing enough to protect consumers in these types of cases”.
It was reasonable to assume your bank was checking information submitted in payment reference fields to prevent fraud, he said.
“We know of course from this decision that that is not happening and the banking sector needs to take responsibility for that.”
Reimbursement rules needed to be brought into line with the UK, where banks must now refund victims of authorised payment fraud, and - unlike here - the watchdog can investigate the actions of recipient banks.
Consumer NZ CEO and Banking Ombudsman board member Jon Duffy says banks are paying "lip service" but scam losses continue mounting up. Photo / Supplied
Moves to implement a confirmation of payee system to verify recipient accounts were long overdue, Duffy said.
“Banks are paying lip service to this at the moment but I don’t see any action. The scam losses keep mounting up.”
New rules giving the Banking Ombudsman more teeth and forcing banks to implement specific security systems could either be introduced voluntarily or though government regulation, Duffy said.
“My feeling is the Government will need to intervene.”
Consumer Affairs Minister Andrew Bayly fired a warning shot last month, calling for banks to immediately introduce new measures to protect customers and reimburse fraud victims, or risk having changes forced upon them through regulation.
Banking Ombudsman Nicola Sladden ‘deeply concerned’ by rise in scams
Sladden told the Herald she was deeply concerned about the rise in fraud cases and impact on people’s lives.
“We agree the fraud reimbursement rules need reviewing. And like Consumer NZ, we are pushing for such a review.”
Comprehensive, mandatory codes of practice were needed for banks, telecommunication companies and digital platforms setting out their responsibilities in preventing scams and when they should reimburse victims.
“Clarity of the fraud reimbursement rules is required for everybody, including our scheme.”
Sladden said her office had to apply the current fraud reimbursement rules when assessing complaints.
Banking Ombudsman Nicola Sladden says her office must apply the current fraud reimbursement rules, but supports a review. Photo / NZME
“It is for the regulator and ultimately Parliament to mandate changes to the fraud reimbursement rules. It is a policy decision who bears responsibility for scams and when.”
New Zealand Banking Association chief executive Roger Beaumont said Duffy seemed to have “missed the memo” on the sector’s work to prevent scams and protect customers.
Banks were implementing a “suite” of anti-scam initiatives including confirmation of payee (to be rolled out this year), removing links from texts to customers, and establishing the first phase of the Anti-Scam Centre targeting mule accounts.
Beaumont said the sector had already identified almost 1500 mule accounts used by criminals to move stolen money.
New Zealand Banking Association CEO Roger Beaumont says banks are reviewing international best practice for reimbursing customers. Photo / Dean Purcell
In a new development, banks had agreed to review international best practice for reimbursing customers who lose money through authorised payment fraud, such as romance and investment scams.
“On the back of that, we’ll look at updating the current reimbursement approach in the Code of Banking Practice, which sets out what customers can expect from their bank.”
Beaumont said banks were often at the end of a chain of events leading to scams.
“To truly strengthen New Zealand’s scam defences, everyone in the ecosystem needs to play their part – and that includes government, telcos, social media companies, and search engines. Banks can’t protect New Zealanders on their own.”
Lane Nichols is a senior journalist and deputy head of news based in Auckland. Before joining the Herald in 2012, he spent a decade at Wellington’s Dominion Post and Nelson Mail.
