In 2022, fraud resulted in £1.2 billion in losses in the UK, equating to £2,300 every minute, according to UK Finance. Despite a slight decrease in cases and total losses compared to the previous year, and a further slight decrease in 2023, fraud remains the most common crime, affecting one in 15 individuals. The situation is sadly no better in the European Union (EU). Payment card fraud was the most prevalent, followed by purchase scams. A wide range of other forms of fraud are also prevalent. Banks reimbursed only 59% of authorised fraud losses, prompting calls for tech firms to share the financial burden. This article will explore the measures being taken in both the UK and the EU to mitigate the impact of fraud on individuals, highlighting the urgent need for effective solutions.
What kind of fraud is taking place?
Currently some of the most significant forms of financial fraud in the UK and the EU include:
Online Banking Fraud: This type of fraud involves unauthorised transactions through online banking platforms. Fraudsters often use malware, phishing or social engineering techniques to gain access to victims’ accounts. The damage from online banking fraud can be substantial, as victims may lose significant amounts of money, and the recovery process can be lengthy and stressful.
Payment Card Fraud: Payment card fraud involves the unauthorised use of stolen or cloned credit/debit card information. With the rise of contactless payment methods, this type of fraud has become more prevalent. The financial loss to individuals can be devastating, and the cost to organisations in terms of fraud detection and prevention measures is also significant.
Investment Scams: These promise high returns from investments in non-existent or worthless shares, property, or commodities. Pension liberation scams and cryptocurrency investment scams are particularly rampant. These scams can often result in wiping out life savings and retirement funds.
Authorised Push Payment (APP) Scams: In APP scams, individuals or businesses are tricked into transferring money to accounts controlled by fraudsters. These scams often involve fraudulent invoices or imposters posing as legitimate entities. Victims of APP scams can suffer considerable financial losses, and the impact on businesses can be severe, leading to disrupted operations and financial instability.
Insurance Fraud: This includes false or exaggerated claims, such as staged car accidents or false theft reports. This type of fraud not only leads to higher premiums for policyholders but also burdens insurance companies with substantial investigation and claim processing costs.
Mortgage and Property Fraud: Here fraud involves using false information to obtain mortgages or using stolen identities to sell or mortgage properties without the owner’s consent. The financial and emotional toll on victims is significant, as resolving these cases often involves lengthy legal battles and recovery processes.
Phishing and Vishing: Sending deceptive emails to solicit personal information is known as phishing, while vishing uses phone calls for the same purpose. These tactics are used to gain access to personal and financial information, leading to identity theft and financial fraud.
Identity Theft: This involves the use of stolen personal information to commit fraud, such as opening new accounts, taking out loans, or making fraudulent purchases. The consequences for individuals are severe, as it can take years to restore their credit and resolve fraudulent activities.
UK Government Actions to Reduce Financial Fraud
The UK government has implemented several significant measures to combat various forms of financial fraud:
1. National Fraud Strategy
In 2019, the UK government launched the Economic Crime Plan, a comprehensive strategy aimed at reducing fraud and economic crime. This plan includes initiatives to improve intelligence sharing between law enforcement agencies, financial institutions and the private sector. By enhancing coordination and leveraging technology, the government aims to disrupt fraudulent activities and bring perpetrators to justice. This strategy specifically targets fraud types such as APP scams and investment scams, which have seen significant growth in recent years.
2. Payment Systems Regulator (PSR)
Established in 2015, the Payment Systems Regulator (PSR) plays a crucial role in protecting consumers from payment fraud. In 2019, the PSR introduced a new voluntary code for APP scams, requiring banks to reimburse victims of authorised push payment fraud. This measure ensures that victims are compensated, reducing the financial impact on individuals. The PSR also works with banks to improve their fraud detection and prevention systems, particularly for payment card fraud and online banking fraud.
3. Online Safety Bill
Introduced in Parliament in 2021, the Online Safety Bill aims to hold tech companies accountable for preventing online fraud. This legislation requires online platforms to take proactive measures to detect and remove fraudulent content, such as phishing and investment scam advertisements. By placing responsibility on tech companies to monitor and eliminate fraudulent activities on their platforms, the government seeks to reduce the incidence of online fraud and protect consumers from falling victim to scams.
These measures demonstrate the UK government’s commitment to tackling financial fraud through enhanced regulation, improved coordination, and holding online platforms accountable.
EU Actions to Reduce Financial Fraud
The EU has implemented several key measures to combat financial fraud, including the following:
1. Revised Payment Services Directive (PSD2)
Implemented in January 2018, the Revised Payment Services Directive (PSD2) enhances consumer protection and promotes innovation in the financial services sector. PSD2 mandates strong customer authentication (SCA) for electronic payments, significantly reducing the risk of payment card fraud and online banking fraud. By requiring multi-factor authentication for transactions, PSD2 aims to protect consumers from unauthorised access to their financial accounts and improve overall transaction security.
2. Anti-Money Laundering Directive (AMLD)
The Fifth Anti-Money Laundering Directive (AMLD5), which came into effect in January 2020, strengthens the EU’s framework for combating money laundering and terrorist financing, which are often linked to various forms of fraud, including investment scams and identity theft. AMLD5 enhances transparency by requiring beneficial ownership information and expanding the scope of obliged entities, including virtual currency platforms and wallet providers. This directive aids in identifying and preventing fraudulent activities by increasing scrutiny and accountability within the financial system.
3. General Data Protection Regulation (GDPR)
Enforced since May 2018, the General Data Protection Regulation (GDPR) is designed to protect personal data and privacy for EU citizens. GDPR mandates stringent data protection measures and holds organisations accountable for data breaches. By ensuring robust data security, GDPR helps reduce the risk of identity theft and phishing attacks, as organisations must implement comprehensive data protection strategies and report breaches promptly. The regulation also empowers consumers with greater control over their personal data, reducing the likelihood of data being exploited for fraudulent purposes.
These measures underscore the EU’s commitment to safeguarding its citizens from financial fraud through enhanced security, transparency and accountability within the financial and data protection frameworks.
A Continuing Journey
Both the UK and the EU are actively working to reduce the effects of fraud through enhanced regulations, improved coordination, and increased accountability for tech companies. Despite these efforts, significant challenges remain in a dynamic environment where criminals often outpace governmental actions. Issues such as insufficient real-time monitoring, lack of comprehensive cross-border cooperation, and slow adaptation to new fraud tactics are areas needing improvement. Individuals must also take responsibility by staying informed, using strong passwords, and being vigilant against phishing and vishing attempts. Ongoing collaboration between governments, organisations and individuals is crucial to effectively combat fraud and protect against financial losses.
