Key Takeaways:
– UK-based banking and payment firms are pressuring social media companies like Meta to bear the cost of online fraud reimbursements.
– From October 7, these firms are mandated to compensate up to £85,000 for victims of Authorized Push Payment (APP) fraud.
– Despite a partnership between Meta, NatWest, and Metro Bank to share intelligence on fraudulent activity, banks like Revolut believe more action should be taken by social media platforms.
– Labour Party had proposed forcing tech firms to compensate victims of fraud originating from/social media platforms.
– This debate regarding liability and regulatory regime over tech companies continues, with no immediate resolution expected.
A Growing Dispute Over Fraud Liability
A dispute is growing between financial and tech companies in the UK, specifically focusing on who should bear the weight of compensating the victims of online frauds. Banks and payment firms are calling for tech companies like Meta to be held liable. This debate comes ahead of an industry change starting from October 7, where banks will be mandated to compensate individuals affected by a particular type of online scam, known as Authorized Push Payment (APP) fraud.
Understanding APP Fraud
APP fraud is a scam tactic where fraudsters impersonate legitimate individuals or businesses to convince victims to transfer money to them. Following this new rule, the fraud’s victims could receive a maximum of £85,000 in compensation. While sizable, this sum falls short of the initially proposed £415,000, which was met with backlash by the financial industry for being an unaffordable burden. In response, the Payment Systems Regulator (PSR) scaled back the proposed figure.
Firms Face Fraud Compensation Costs
With the new rules, the question arises whether financial companies are bearing the brunt of the compensation costs for victims of online fraud. Revolut, a London-based digital bank, accused Meta, the parent company of Facebook, of not doing enough to combat global fraud. This follows the announcement of Meta’s partnership with UK lenders NatWest and Metro Bank to share insights into fraudulent activities occurring on social media platforms.
Revolut’s head of financial crime, Woody Malouf, argued that social media platforms like Meta should help cover the compensation costs. According to Maloof, such firms currently have “no incentive to do anything about it,” further emphasizing the need to financially compensate victims who fall for scams on their websites and apps.
Long-Standing Tensions
Tensions have been escalating between banks and tech firms for a while now, with an increasing prevalence of online fraud due to the surge in usage of digital payment platforms. Last June, the Labour Party had proposed to make tech firms liable for fraud occurring on their platforms. This proposition’s status is still unclear, and an official government statement is yet to be issued.
However, Matt Akroyd, a commercial litigation lawyer at Stewarts, mentioned that banks could receive a boost in their efforts to have regulatory liability placed on tech companies. He stated, “The question of what regulatory regime could cover those companies who do not play an active role in the PSR’s payment systems, and how, is complicated meaning that this issue is not likely to be resolved anytime soon.”
Collaboration is the Key
For some time now, both banks and regulatory bodies have been urging social media firms to work more closely with UK retail banks. The aim of such cooperation would help combat the constantly evolving threat of fraudulent activities. Policymakers are demanding more transparency into where exactly the fraud is happening so they can better concentrate their efforts.
Tech Firms Response
Tech giants like Meta have responded to these allegations, stating that enforcing liability on compensations would play into the hands of fraudsters. Instead, they suggest more cross-industry collaborations. Furthermore, they highlighted their Fraud Intelligence Reciprocal Exchange (FIRE) initiative as a solution. This initiative enables data exchange between banks and tech firms to better stop fraudulent activities.
In conclusion, the narrative remains balanced on a knife’s edge. Whether banks and payment firms will succeed in making tech companies share liability for fraud compensation is yet to be seen. However, it’s clear that a closer symbiosis between the financial sector and tech companies is essential to mitigating online fraud’s ever-growing threat.