Fintech wrap: Fraud down 4%, FCA fines HSBC, BoE stresses need for AI regs

Our pick of the week’s fintech stories.

A UK Finance report has found that overall fraud rates reported by its members decreased by 4% in 2023, after reaching over £1.2 billion ($1.52 billion) in 2022.

While card ID theft increased 53% to £79.1m ($100m), the overall figure was brought down by banks’ prevention of £1.25 billion ($1.58 billion) worth of fraud. In 98% of cases, those affected were refunded.

Losses due to unauthorised transactions across payment cards, remote banking, and cheques amounted to £708.7m ($900m), down 3% compared to 2022.

Data found 76% of Authorised Push Payment (APP) fraud cases originated from online sources. These cases tend to be lower-value scams, such as purchase scams, and accounted for 30% of total losses.

Some 16% of cases originated in telecommunications and these tend to include higher-value cases, such as impersonation fraud, which accounted for 43% of total losses.

The Payment Systems Regulator and the Bank of England have introduced a mandatory reimbursement scheme which will come into force in October 2024. The scheme will benefit victims of APP fraud and increase transparency by publishing APP fraud data.

“The financial services industry remains at the forefront of efforts to protect customers, prevent fraud and support those who fall victim,” Ben Donaldson, Managing Director of Economic Crime at UK Finance, said. “With reimbursement rules set to change we risk even more money getting into criminal hands, unless the technology and telecommunication sectors take proper action to stop the fraud that proliferates on their platforms and networks.”

HSBC fined £6.2m over treatment of customers in financial difficulty

The FCA has fined HSBC UK Bank plc, HSBC Bank plc, and Marks and Spencer Financial Services plc (HSBC) £6.3m ($8m) for “failures in its treatment of customers who were in arrears or experiencing financial difficulty.”

Between June 2017 and October 2018, HSBC failed to properly consider people’s circumstances when they had missed payments or conduct the right affordability assessments, the FCA said.

Sometimes it took disproportionate action when people fell behind with payments, which risked people getting into greater financial difficulty. 

The FCA blamed HSBC’s policies and procedures and the training of staff, as well as inadequate measures to identify and address instances of unfair customer treatment. 

HSBC notified the FCA in 2018 of the mishandling of customers in financial difficulty, and invested £94m ($119m) in identifying the issues and putting them right. HSBC also issued redress payments totalling £185m ($235m) to over 1.5 million customers.

Bank of England warns of AI disruption

Artificial intelligence could be fundamentally disruptive but help boost productivity in Britain’s economy, posing a challenge to regulators who should be open to new rule-making approaches, BoE Financial Policy Committee member, Randall Kroszner, said at CityWeek.

“When innovation is incremental it is easier for regulators to understand the consequences of their actions and to do a reasonable job of undertaking regulatory actions that align with achieving their financial stability goals,” he said.

With the pace of change in AI being much faster, regulators needed to adapt, he said. “The challenge is therefore to develop a regulatory framework that fosters the flowering of creativity and innovation but takes into account the potential financial stability risks. Regulators, however, should be open to new approaches that might shape these frameworks.”

 The BoE’s new Digital Securities Sandbox will allow companies to test new technologies under regulatory supervision and aims for an agile environment for identifying those new developments and the appropriate regulation.