Holding the banking industry responsible for loss caused by fraud could drive down crime
4 min read
Ahead of her Westminster Hall Debate on fraudulent accounts in the banking sector, Maria Miller MP says that stronger measures to tackle bank account fraud could improve confidence in the sector.
Our banking system works on the basis of trust. Trust that we can confidently deposit, withdraw and move money between accounts, which can only be opened by people who can prove who they are. Money Laundering Regulations mean that financial institutions like banks commit a serious crime if they allow an account to be opened without satisfactory evidence of both the identity of an applicant and their home address.
Over the past two years I have become abundantly aware of the opaque way in which this legal framework currently operates and the lack of accountability when things go wrong. As a result I have called a debate in the House of Commons today to call for a review of how money laundering regulations operate and for clarity as to who holds banks to account for the way these important regulations work in practice.
One of my constituents, who rightly wants to protect his privacy, came to me 2 years ago after he lodged a payment of £13 500 into a Lloyds Bank account for services which he subsequently didn’t receive. He reported the crime to the Police and was staggered when it was revealed that the account had been opened fraudulently by an individual using a provisional driving licence and an address that the Police quickly established was fake. With little information to go on the Police could not identify any viable suspects to pursue and the case was closed.
Financial fraud across payment cards, remote banking and cheques costs banking customers and shareholders £768million a year and this might well be just the tip of the iceberg as frauds such as the one experienced by my constituent doesn’t appear to be viewed by the banking industry as their problem.
But this case deserves more careful analysis. If Lloyds had done their job properly and obtained the account applicants true identity, then the Police could have been able to pursue a criminal conviction. Lloyds is also presumably at risk of having breached the Money Laundering Regulations for not establishing the true identity of their account holder; a criminal offence with up to 2 years in prison and a hefty fine. Insufficient evidence has meant that the Police do not appear to be in a position to bring a prosecution either way.
There are a bewildering array of organisations with the responsibility of making our banking system safe, yet over the past 2 years none have wanted to act to bring to justice the perpetrators of this fraud or indeed investigate Lloyds Bank’s compliance with Money Laundering Regulations. The Financial Conduct Authority doesn’t review or advise on individual cases. The Financial Ombudsman can only consider what the Bank did with regard to the payment made, they cannot consider how the account was opened or the process the bank followed when it was opened. Action Fraud don’t themselves investigate crime but send details onto the relevant Police Force who in this case cannot pursue lines of inquiry because of the inadequate information collected by the Bank in the first place.
The Payment Systems Regulator has already admitted that bank fraud is a significant and growing problem but doesn’t support calls from consumer organisations like WHICH to make banks responsible for reimbursing fraud victims as credit card companies are required to do by law. Perhaps if Banks were responsible for all crimes committed as a result of fraudulent accounts being opened then they would be more careful about who they allowed to become their customers.
In 2016 the then Home Secretary, now Prime Minister, Theresa May established a Fraud Task Force to assist with her work to stamp out organised crime and human trafficking. That Task Force needs to look carefully at how Money Laundering Regulations, which look good on paper, are being used in practice. At the moment there is no way for any individual to have evidence of breeches examined except through the Police, who may judge there to be insufficient evidence to proceed.
Banking is a vital part of the UK economy and we have to be confident that it is fit for purpose. If Money Laundering Regulations were better monitored and Banks were made responsible for compensating individuals who have lost financially as a result of accounts being used fraudulently we might see a better focus on driving down this area of crime and more confidence in our Banks.
Maria Miller is the Conservative Member of Parliament for Baskingstoke
UK Finance has responded to Maria Miller's article saying the banking industry is committed to tackling fraud, but there are some essential steps the Government can take to help. Read the full piece here.
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