The industry should focus on fraud prevention not just the "reimbursement" of its victims, the Financial Conduct Authority's supervision head has said.
Speaking at an evidence session on economic crime at a Treasury select committee today (May 15) Megan Butler, executive director of supervision, investments, wholesale and specialist at the FCA, said consumers needed to be able to rely on firms to prevent fraud as getting money back was not helping their confidence in the system.
Ms Butler said: "I think there is an awful lot of evidence that shows even if you get your money back, you are so inherently damaged through that process that it undermines your absolute confidence.
"So we can't just have a reimbursement strategy we have to have a prevention strategy."
Yesterday (May 15) the ombudsman reported it had received 12,195 complaints in relation to fraud and scams in the 2018/19 financial year - up 43 per cent from the 8,523 seen in 2017/18.
The complaints involved all types of fraud including ID theft, online transfers and authorised push payments, with the ombudsman warning banks there was a "high bar to meet" before they can refuse to refund a customer's money.
Authorised push payments are one of the fastest-growing types of fraud, where victims unwittingly act on fraudster's instructions to carry out transactions themselves.
When asked by Nicky Morgan MP, chairwoman of the Treasury select committee, if anything in the regulatory landscape had changed how fraudulent activity was addressed, Ms Butler said it was "certainly a very high priority" for the FCA.
She added: "Yes, it's big, yes it's growing and it seems to be about the developments in technology."
In January the remit of the Fos grew meaning it can now hold to account the bank which received a fraudulent payment, a function it did not previously hold.
Ms Butler pointed to this extension as helping tackle fraud in the industry.
She said: "The extension of the Fos regime and its remit to more clearly encompass the range of issues that people who have suffered and have been victims of push payment fraud, now means people have a greater capacity to go to the ombudsman and complain if their bank, or indeed the payee bank, has not stepped up to the mark.
"And I think that's one of the key reasons why we are seeing such a tick up in that number [fraud and scam complaints received by the Fos] , but we would have expected to see that and I think that's coming through."
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