How to get your client's stolen money back

  • Describe what push payment fraud is
  • Explain what the banking industry is doing about it
  • Explain the relevance of the Quincecare case
How to get your client's stolen money back

Authorised push payment fraud is becoming ever more sophisticated and increasingly prevalent in the UK: during the first half of 2019, Britons lost £207mi in these frauds, up by 40 per cent from the same period last year. 

Push payment frauds involve consumers or business employees being tricked into sending a payment under false pretences to a bank account that is controlled by the fraudster.

Because payments made using real-time payment schemes are irrevocable, victims are unable to reverse such a payment once they realise that they have been defrauded.

Banks argue that if they have received a payment instruction in accordance with the mandate, they are not liable to compensate the customer.

Confirmation of Payee – a protocol to cross-check the payee name entered by the paying party with the name of the account-holder at the receiving bank – has been repeatedly delayed.

Its absence has been criticised by consumer rights campaigners, who argue that the banks’ failure to check the payee name is itself negligent on the part of the banks and a substantial cause of the frauds.

Although banking technology continues to develop in advancing security measures to counteract such frauds, so do the systems used to undermine them, leaving millions of customers potentially vulnerable.

The question of how banks should reimburse victims for frauds perpetrated on them is still unresolved.

Victim compensation

A temporary fix was put in place by way of a scheme to compensate victims who were not themselves to blame.

The banks’ trade association UK Finance has announced that the fraud fund used to compensate victims will be temporarily extended until the end of March 2020, but there is no certainty that it will continue after that. 

A long-term funding solution was expected to have been agreed before talks recently broke down between the banks concerned.

One potential solution – a 2.9p levy on all transfers over £30 – was rejected after disagreement.

Ultimately, an agreement should be reached in the next few months since there is consensus across the banking and payments sector for a long-term, sustainable compensation funding solution to be established, but there is controversy over how the cost should be borne. 

Singularis vs Daiwa

Meanwhile, an alternative route to compensation has opened up through a recent Supreme Court decision in the case of Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd. 

The Singularis case is surprising to many in the banking industry.

To understand why, it is worth examining the details.

The duty of care owed by a bank to its customer was set out in the 1992 case, Barclays Bank plc v Quincecare Ltd, which remains the leading case on the subject.

Ever since, this has been known as the Quincecare duty of care.

Despite the passing of years since the Quincecare decision, the Singularis case is the first time the Quincecare duty has been used to grant compensation for what was otherwise a properly-authorised payment.