Borja Ares and Alfiya Laxmidhar lost $330,000 in an elaborate Citibank-branded investment scheme. Photo / Michael Cunningham
A consumer watchdog says the banking industry has put consumers at unnecessary risk by failing to introduce technology to match account names and should now compensate those who lose money through fraud due to the loophole.
The NZ Banking Association today announced plans to roll out a raft of measures to fight fraud and tackle scams following a barrage of huge victim losses and negative headlines in recent months, including the threat of a potential class action.
The changes include cracking down on “mule” accounts, removing weblinks from all text messages to customers and investigating an industry-wide “confirmation of payee” account name-checking service to protect consumers.
No timeframes were provided, with Banking Association saying they would “vary depending on their complexity and feasibility”.
Consumer NZ boss Jon Duffy said urgent changes were needed to better protect people from scammers who are estimated to be siphoning hundreds of millions a year from Kiwi victims.
“We are concerned that without urgent action by the banks and other businesses to better protect their customers, the number of scam victims will continue to increase.”
New Zealand banks were already well behind comparable countries in terms of scam protections, and he was concerned at the lack of timeframes provided for any meaningful improvements.
Introducing account matching technology to ensure someone sent money to the intended recipient was a no-brainer that should have been introduced here already, Duffy said.
“Having accepted ‘confirmation of payee’ capability is needed to prevent scams, the banks are acknowledging they should have implemented this by now and have not been adequately protecting their customers.
“In our view, until banks can deliver this functionality, they should reimburse any customers who fall victim to scams that would have been stopped if confirmation of payee functionality was in place.”
The sector also wants to implement a multi-sector Anti-Scam Centre to coordinate the fight against online fraud.
Duffy said Consumer NZ strongly supported the move. However, “we don’t think it’s appropriate for the centre to be industry-led as it will lack independence, consumer trust and would be difficult to administer”.
Instead, the government should fund a respected organisation like Netsafe to coordinate the centre.
Today’s announcement comes days after the industry was accused of “corporate failure” and confirmation that victims were considering a possible class action against the banks.
A victim who lost $400,000 this year in an HSBC-branded scam said he was pleased the banks had finally realised their systems were “defunct, outdated and rife with criminal opportunity compared to the rest of the world”.
He believed it had taken media pressure to force the banks to act in order to protect their damaged reputations.
“Unfortunately for me, this comes far too late as my family’s lives have already been destroyed. It’s interesting banks are advocating for more measures to recognise active scams and criminal account activity. I think the public already believed banks had their eyes on these things, protecting New Zealand from such activity.”
NZ Banking Association chief executive Roger Beaumont said new measures being rolled out involved a coordinated, multi-sector approach that would help fight fraud and the scourge of scams.
While today’s joint commitment by retail banks was expected to have an impact in tackling fraud and scams, Beaumont warned that the industry could not address this issue in isolation.
“Scams go much wider than our industry, affecting government agencies, including police, telcos, social media companies, internet service providers and other sectors too.
“Our retail banks already have systems in place to help detect and warn customers about potential scams and the further initiatives announced by the industry today are expected to have a significant impact in combatting scams.
“But we have reached a point where a new approach to fighting fraud and scams is required and this will need the involvement and investment of all affected sectors.”
The new measures include:
The banking industry has been under growing pressure to take action to protect customers amid numerous reports of New Zealanders being fleeced.
Overseas criminal syndicates are estimated to be draining hundreds of millions of dollars from Kiwi victims each year.
A Herald investigation has uncovered a raft of cases this year alone in which victims lost their life savings in elaborate investment scams, thinking they were investing in term deposits with reputable international finance companies such as Citibank and HSBC.
The criminals use local “mule” accounts to receive the money and then immediately transfer the stolen cash offshore.
This week, former fund manager and investment banker Janine Starks called on the Banking Ombudsman to launch a joint investigation into the cluster of investment scam cases, citing what she believed were “corporate failure” and negligence by New Zealand banks.
She claimed there were “systemic failures” across the banking sector in fraud detection and consumer protection, leaving customers at heightened risk.
Starks believed the domestic banking industry had fallen well behind many of its OECD peers by failing to keep security systems up to date with emerging threats.
These failures include inadequate algorithms that failed to detect suspicious transactions or pick up references to known scams; poor staff training and knowledge of recent FMA scam warnings; and the lack of payment systems to match account names with recipient banks.
“We’ve got so far behind that it’s absolute negligence on the banks’ behalf and it’s an embarrassment internationally what they’re getting away with,” she claimed.
She had been working pro bono with a group of victims whose banks had refused liability for their losses and who had now complained to the Banking Ombudsman.
That group includes North Shore real estate agent Carla O’Neil, Whangārei health worker Borja Ares and Whanganui health administrator Jo Hurley, who between them lost nearly $800,000 to a Citibank-branded ruse earlier this year.
They and other victims are also consulting a lawyer about a possible class action against the banks.
Beaumont said the measures announced today fell into three areas.
“Making it harder for criminals to operate in New Zealand, making it harder for them to target New Zealanders, and supporting ongoing public awareness of scams and how to identify them.
“We support the establishment of an Anti-Scam Centre, similar to the one in Singapore, which would provide a centralised and co-ordinated multi-sector approach to fighting scams from a New Zealand-wide perspective. Telcos and social media companies have indicated an interest in supporting this initiative, and we look forward to working with them and others, including the government, to further protect New Zealanders.
“Work is underway to look at options for a ‘confirmation of payee service’ to enable anyone making an online payment from one bank account to another to check the name of the account they are paying. We will need to investigate privacy considerations and banks’ ability to disclose account names to third parties, as well as technical issues. Banks will work with Payments NZ, which governs the payments system, to help make this a reality.”
He said banks did not currently send text messages asking customers to log in to their online banking. Banks were also working to remove all weblinks or hyperlinks in text messages to customers and encourage other industries to do the same.
“Links in texts are one common way scammers pretending to be a legitimate organisation mislead victims into providing personal information. Removing links from texts reduces this kind of scam risk.”
Banks were also investigating the ability to freeze mule accounts, Beaumont said.
“The mule account owners may be complicit with the criminals or may not be aware their accounts are being used in this way.”
He said banks would also look at “improving consistent and timely outcomes” for customers who suffered financial losses.
“Under the Code of Banking Practice, banks reimburse customers for unauthorised payments where the customer hasn’t been dishonest or negligent, has complied with the bank’s terms of conditions, and has taken reasonable steps to protect their banking. The industry will work closely with the Banking Ombudsman to support a more consistent and timely response to customers who have been scammed.”
ASB has been under pressure after allegations that a customer in Whanganui had used his account to launder up to $1.25 million from six victims before sending the money offshore.
In a statement today, ASB chief executive Vittoria Shortt said keeping people safe from fraud and scams “is a focus area for us”.
“Like other organisations, we are already investing significant time and money in combating fraud and scams but we believe much more can be achieved from a truly joined-up national approach, with banks working more closely together, alongside government, telcos and other private sector companies.
“We have seen this approach work successfully overseas – for example, the Singapore Anti-Scam Centre – and we are working with peers around the world to understand how their learnings can be implemented here.
“This is an incredibly complex problem which requires equally complex solutions and a multi-pronged approach to fight this issue on multiple fronts. The programme of work we’ve announced today is an important step towards the national capability that New Zealanders need.”
Banking Ombudsman Nicola Sladden welcomed the initiatives and supported the “urgent implementation of these initiatives to strengthen consumer protection against fraud and scams”.
“One immediate way to beat some scams would be to introduce confirmation of payee technology. Banks are investing in better systems and security all the time, but introducing confirmation of payee technology would be a game-changer – as consumers in the United Kingdom know and as consumers in Australia are beginning to discover.”
Borja Ares, who lost $330,000 when he was tricked into investing his family’s life savings into a Citibank-branded investment scam, said the changes were “long overdue”.
The Whangārei health worker believed it had taken media pressure to force the banks to act in order to protect their damaged reputation.
“It´s a pity that we needed so much loss and suffering for the industry to start taking action.
“At this point, we need more. We need compensation for past and future victims like they have in the UK. This is the only way to ensure that the industry will keep its promise and that it will keep improving the system when needed as the world turns and evolves.”
Regaining people’s trust would take more than “grand gestures”, Ares said.
“We know how lacking the systems they´ve implemented in the past are and we have yet to see if they do better in the future. I´m happy, yet sceptical. Tired of empty words and false promises. We´ll know them for their fruits, not their words.”
Another victim who lost $400,000 this year in an HSBC-branded scam said he was pleased the banks had finally realised their systems were “defunct, outdated and rife with criminal opportunity compared to the rest of the world”.
“Unfortunately for me, this comes far too late as my family’s lives have already been destroyed. It’s interesting banks are advocating for more measures to recognise active scams and criminal account activity. I think the public already believed banks had their eyes on these things, protecting New Zealand from such activity.”
A Horizon survey released last week found only one in three Kiwis think their bank is doing enough to protect them from fraud, and that people overwhelmingly support anti-fraud measures adopted across the Tasman - even if it means slower payment processing.
Some 10 per cent of respondents (equating to 385,000 New Zealanders) had experienced fraud or theft involving a bank account.
From 2030 census data will be collected from existing statistics and regular surveys.