About time! Recourse for retail customers comes to UK – via the high street bank

The tardiness that has been demonstrated in combating the entities that have muddied the waters in the retail FX business by the very same regulatory authorities that are now making life hard for long-established bona fide electronic trading companies in the United Kingdom by inflicting massive restrictions on how they offer their products is a massive moot point.

Justifiably so, of course. Whilst Cyprus and Israel-based binary options firms run by low grade Israeli fraudsters have managed to get away with not only their own evil deeds but also dragging the name and reputation of the retail electronic trading sector down, with it creating advertising bans, national exclusions and draconian leverage and marketing restrictions which now burden the good quality and often publicly listed companies that have spent the last 30 years satisfying their customers to a high standard and leading the evolution of the business.

A regulatory dichotomy, and an oxymoron too, as even the FBI, which originally demonstrated some degree of mettle toward combating such antics, has now gone quiet and is taking too long to address those who have now morphed into another disguise in order to carry on as normal.

Even the promotion agencies which allow massive banners and logos to proliferate some of the national sports teams are clueless, as per FinanceFeeds research into this, and our campaign which helped Southampton Football Club do away with a major binary options fraudster as its sponsor.

The good, therefore, has become encumbered and the bad have run away.

This week, however, a step in the right direction has come about, with the office of the United Kingdom Financial Ombudsman having made a very positive new ruling which could set a benchmark for recourse by retail customers over the firms that have taken their money.

This particular case, which involved a retail investor having been led to believe that he was speaking to Santander’s anti-fraud department and subsequently handing over secure information about his account in order that the criminals posing as Santander could transfer money out of his account, has resulted in the Financial Ombudsman actually ordering Santander itself to hand £12,000 to the customer concerned, even though Santander did not cause the crime to happen.

Banks typically refuse to refund scam victims in these instances on the grounds they authorised the payment or were negligent with their banking details – even if they had no idea they were speaking to fraudsters, however in this case, the Ombudsman said the customer was ‘a victim of a sophisticated scam with social engineering at the very heart of it’ and had not authorised the transaction or acted with gross negligence.

As last week drew to a close, fraud expert Richard Emery, of consultancy 4Keys International, told British press “This is a huge step forward. The Ombudsman now recognises fraudsters are far more sophisticated than in the past. The bar has been set at a higher level and, if a bank refuses to refund victims, it will have to prove they have been truly negligent. The chances of the Ombudsman taking the bank’s side now are very slim.”

Now, this has set a benchmark for other customers to approach their merchant services providers or banks if they have been duped by scammers pretending to offer eletronic trading to customers, when actually their intention is to simply steal the money.

Yes, British customers are protected to some extent by the Financial Services Compensation Scheme (FSCS) to the value of £85,000, however that only applies if the losses occur due to the collapse of a British bank or an FCA regulated non-bank entity such as a UK-based stock or FX brokerage, life assurance company or pension fund. Any customer who sent money to a binary options or crypto scheme based in Cyprus or offshore will not be covered and would have to attempt to sue the brokerage, which under the layered and shape-shifting way that they do business via entities in various offshore regions, is nigh on impossible.

Now, it is likely that should a bank or credit card company be either impersonated by a fraudster in order to gain money, or trick a client into depositing, and the bank allows the transfer, a client will be able to take recourse via the Ombudsman and use this Santander case as a precedent.

For example, in 2015, FinanceFeeds approached a firm in China at a trade show that had been advertising itself as a ‘prime brokerage’. When asked who their liquidity arrangement is with and where the funds go, they explained Barclays in England (for client funds) and that their liquidity was Tier 1 bank level, having reeled off names from Deutsche Bank to Credit Suisse, all of which was of course false and the trades really go in the big shiny bucket.

Should a UK customer now be told that their funds are going to a Barclays account, and make a transfer on that basis or a credit card transaction therefore not being able to see which bank ultimately receives the funds, it may well be that the Ombudsman would refer to this case with Santander and instruct a refund from the UK based merchant that sent the money.

The decision means that fraud victims who have recently been refused a refund by their bank on the grounds they were grossly negligent could resubmit a complaint to their bank. The bank may then agree to have another look at the complaint and, if not, the customer could escalate it to the Ombudsman. Customers could also ask the Ombudsman to reopen their case if they have not yet received a final decision.

Customers have six years to complain to their bank about a disputed unauthorized transaction. When banks reject a complaint, customers have six months to go to the Ombudsman.

Caroline Wayman, chief executive of the Financial Ombudsman Service, said: ‘Each year, we see more than 8,000 cases involving fraud and scams. ‘It’s not fair to automatically call a customer grossly negligent simply because they’ve fallen for a scam. That’s especially true in light of the sophisticated way criminals exploit banks’ security systems – and convince customers that their money is at risk.’

Where the ruling would not apply is under the circumstance that someone was tricked into transferring money into a fraudster’s account for a car that later turned out not to exist or convinced to make a payment to a bogus solicitor when buying a house. This is because they transferred the money themselves, which is known as authorized push payment fraud, however in many cases, binary options and crypto scammers tend to use methods that associate themselves with bona fide financial institutions in order to gain access to deposit payments.

It is not uncommon, for example, for some of their sales staff, usually based in Israel, to claim that they are at Merrill Lynch or Goldman Sachs in London and that they are offering access to live markets. This type of mantra clearly echoes that of the impostors that were the center of the Ombudsman’s recent ruling.

It should also put an end to the scams that are being orchestrated by former binary options fraudsters who now approach the exact same people they have conned and promise that they will retrieve the lost money – an evil practice that preys on the weaknesses of those who have already fallen foul, because in this case, defrauded people can simply go to the Ombudsman who will then reproach their bank or merchant provider, which in turn will make banks take more notice of who is transferring money to who and where.

About £145million was lost to this type of fraud in the first six months of last year – up 50 per cent on the same period in 2017, and a new code of conduct is expected to be introduced soon to ensure all victims will be treated fairly and compensated regardless of how it occurred. The Payment Systems Regulator said it is still being finalized.