Contribution
My Lords, I have added my name in support of Amendment 17, which the noble Baroness, Lady Kramer has already explained, I have also tabled Amendment 19. Both amendments relate to the continuing problem of fraud. As noble Lords are probably aware, the last Financial Services and Markets Act led to the introduction of the compulsory reimbursement for APP fraud losses by the banks, split 50:50 between the paying bank and the receiving bank.
This has had two effects. First, it has increased reimbursement to victims; but also, importantly, by imposing the financial costs of fraud on to the banks, it has given them a strong incentive to take steps to protect their customers from fraud, and they have done so. There are some valid concerns about how this might change victims’ behaviour—the question of moral hazard—and I hope the FCA will keep that under review; but it is fair to say that the requirements to reimburse customers in respect of fraud has generally been seen to be successful.
The logic for pushing the obligation on to the banks is that almost every fraud has to be cashed out through the banking system at some point in the chain. It is also true, however, that very little fraud arises from the banks themselves. As we have just heard, most APP fraud starts online or on a telecoms service—around 66% online and 17% from telecoms. Once again, I will namecheck Meta, from whose platforms the greatest amount of such fraud originates. Surely, it would be better to try to prevent fraud where it originates than to just reimburse it. Despite various voluntary charters, this is not improving at all. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, recognised this in its report four years ago. We said:
“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act”.
We were right: they have not acted. The Government's most recent fraud strategy also recognised this. It says:
“if industry partnership and market incentives alone remain insufficient to drive improvements, the Government will take legislative action within this Parliament”.
There have been no improvements. It is time to legislate.
I am sure the Minister is going to explain that the Online Safety Act is going to deal with all this, and it does help, but only to a certain extent. It is quite limited on what is covered and where in relation to fraud, primarily paid-for advertising, which is only a small area from where fraud originates. Amendment 17 would make the tech companies directly liable for their share of the cost of the fraud arising on their platforms. This Bill gives us the perfect opportunity to take the legislative action the Government have themselves committed to: to make the tech and telco companies take their responsibilities to their customers seriously without further delay. It is four years, as I said, since the committee reached its conclusion on this. So, I urge noble Lords to support the noble Baroness, Lady Kramer, if she decides to press Amendment 17, as I hope she will do.
My Amendment 19 is very simple. During the passage of the last Financial Services and Markets Bill, the then Government agreed to ensure that the Payment Systems Regulator should prepare a report every six months that sets out how the payment services providers are performing in relation to paying out and receiving fraudulent payments, as well as their reimbursement performance. Since the compulsory reimbursement scheme started, that reporting has stopped, but the reports were very helpful—not only in relation to reimbursement performance under the then voluntary scheme, but also in identifying and publicising which of the payment providers were the riskiest. It led to some being closed down because their performance in identifying and preventing fraud was so poor.