Meta is facing calls from UK banks and payments companies such as Revolut to financially compensate people who fall for scams on its services.
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Tensions are escalating between banking and payment firms and social media companies in the UK over who should be responsible for compensating people if they fall victim to online fraud schemes.
From October 7, banks will have to start compensating victims of so-called authorized push payment (APP) fraud with a maximum of £85,000 if those affected were tricked or psychologically manipulated into handing over the cash.
APP fraud is a form of fraud where criminals try to get people to send them money by pretending to be people or businesses selling a service.
The £85,000 refund could prove costly for major banks and payment companies. However, it is actually lower than the mandatory refund amount of £415,000 previously proposed by the UK Payment Systems Regulator (PSR).
The PSR backed away from its push for the high maximum compensation after industry backlash, with industry group the Payments Association specifically saying it would be too costly for the financial services sector to shoulder.
But now that mandatory fraud compensation is being implemented in the UK, questions are being raised about whether financial firms are facing the biggest cost of helping fraud victims.
On Thursday, London-based digital bank Revolut sued After fall “woefully short of what is required to tackle fraud worldwide”. The Facebook owner announced a partnership earlier this week with UK lenders NatWest and Metro Bank, to share information about fraud activity taking place on its platforms.
Woody Malouf, Revolut’s head of financial crime, said that Meta and other social media platforms should help cover the cost of compensating fraud victims and that, by not sharing any responsibility in this, “they have no incentive to do something about it.”
Revolut’s call for major tech platforms to financially compensate people who fall for scams on their sites and apps is not new.
Proposals for the accountability of technology companies
Tensions have been high between banks and tech companies for some time. Online fraud has increased dramatically in recent years due to the acceleration of the use of digital platforms to pay others and buy products online.
In June, the the Financial Times reported that Labor had drawn up proposals to force tech companies to compensate victims of fraud originating from their platforms. It is unclear whether the government still plans to require tech companies to pay compensation to victims of the APP scam.
A government spokesman was not immediately available for comment when contacted by CNBC.
Matt Akroyd, a commercial litigation lawyer at Stewarts, told CNBC that, following their victory to reduce the maximum compensation limit for APP fraud to £85,000, banks “will get another boost if their efforts to push the government to impose some regulatory responsibility Tech companies are also successful.”
However, he added: “The question of what regulatory regime could cover those companies that do not play an active role in PSR payment systems, and how, is complex, which means that this issue is not likely to be resolved anytime soon.”
More broadly, banks and regulators have long been pushing social media companies to work more with UK retail banks to help combat the fast-growing and ever-evolving fraud threat. A key demand was for tech companies to share more detailed information about how criminals abuse their platforms.
At a UK financial industry event focusing on financial fraud in March 2023, regulators and law enforcement highlighted the need for social media companies to do more.
“We’re hearing anecdotally today from all the companies we talk to that a large percentage of this fraud is coming from social media platforms,” Kate Fitzgerald, head of policy at PSR, told attendees at the event.
He added that “total transparency” was needed about where fraud was happening so that regulators could know where to focus their efforts in the value chain.
Social media companies not doing enough to combat and remove attempts to defraud internet users was another complaint from regulators at the event.
“The missing piece is social media companies taking down suspected accounts involved in fraud,” Rob Jones, director general of the National Financial Crime Centre, a unit of the UK’s National Crime Agency, told the event.
Jones added that it was difficult to “break the inertia” in tech companies to “really get them going.”
Tech companies promote ‘cross-industry collaboration’
Meta has withdrawn suggestions that it should be held responsible for paying compensation to victims of APP fraud.
In written evidence to a parliamentary committee last year, the social media giant said banks in the UK were “too focused on trying to shift responsibility for fraud to other industries”, adding that this “creates a hostile environment that plays well . of fraudsters”.
The company said it can use live intelligence from major banks through its Fraud Intelligence Reciprocal Exchange (FIRE) initiative to help stop fraud and evolve and improve its machine learning and AI detection systems. Meta called on the government to “encourage more cross-sectoral cooperation like this”.
In a statement to CNBC on Thursday, the tech giant stressed that banks, including Revolut, should look to join forces with Meta under FIRE to facilitate data exchanges between the company and major lenders.
FIRE “is designed to allow banks to share information so we can work together to protect the people who use our respective services,” a Meta spokesperson said last week. “Fraud is a multi-sectoral issue that can only be tackled by working together.”