Regulatory Intelligence Analysis

Speakers at the recent Scams Summit in Australia expressed a unified sentiment on several pressing concerns regarding the A$3.1 billion per-year problem of financial scams. These include the rise in financial scams driven by the surge in online marketplaces, as well as the shift to the New Payments Platform (NPP).

With the growth in NPP use, the faster settlement service (FSS) has further facilitated fraud due to its immediate nature, allowing fraudsters to move illicit funds instantly in a low-friction payments environment. Also crucial among these concerns were the need for greater government support to raise awareness of scams and the psychological impact on victims, a cost that may be unconsidered in many fraud conversations.

Rob Neely, founder and managing director of Sell Securely in Australia, made an urgent appeal to the government to revisit the 2022 scam report released by the Australian Competition and Consumer Commission (ACCC). There was a need to correlate it with other institutions’ findings, and issue an immediate call-to-action, he said.

In April 2023, the ACCC said Australians had reported A$3.1 billion in losses due to scams in the 2022 financial year. Research from Securely found this may be the tip of the iceberg.

“Our research findings told a completely different story. It found what the government didn’t know and that is, two in three Australians have been scammed and didn’t report it,” Neely said.

“So, it follows that the A$3.1 billion that they were talking about may actually be A$9.3 billion.”

To show the impact of A$9.3 billion within the Australian context, Neely compared it to the size of Qantas and furniture retailer Harvey Norman’s revenue. In relation to Australia’s GDP, the amount is “just under 1%.”

The potential scale of losses suggests that, at the very least, Australians are losing A$60 million per week to scams based on the A$3.1 billion figure. Neely said Australians could be losing A$178 million a week, according to Sell Securely’s data.

Amid these losses, the government committed A$86 million to crack down on scams.

Government engagement

Neely immediately sought an audience with Stephen Jones MP, assistant treasurer and minister for financial services, and the head of ACCC’s National Anti-Scam Centre (NASC), to align information from both sides. He sought to develop action steps that could close the gap between the amount and frequency of scams and the productive interventions from all sectors, led by the government.

None of Neely’s repeated attempts to hold a meeting with the minister or the head of NASC ever succeeded, however. He was once in a meeting with a representative of NASC and pointed out the agency’s lack of understanding of the magnitude of online scams, especially through Meta-owned companies, such as Facebook.

“What was alarming … they had no idea what was going on in Facebook and on online marketplace. They had no idea that Lloyds TSB had recently come out with a warning that 8 out of 10 scams reported to them were marketplace scams,” he said.

It gave him the impression that productive prevention, detection, and response against scams, as outlined in ASIC Report 761, is a low government priority.

Echoing Neely’s impression, Ken Gamble, cybercrime investigator and executive director of IFW Global, discussed his experience in Operation Tropicana and the level of government support that he received, this time from the side of law enforcement.

Gamble described the Australian government’s scam response as a “complete lack of motivation to want to be involved in this [Tropicana] operation,” citing the “obvious reason” that it was not an Australian Federal Police (AFP) operation.

Speed of scams

The Reserve Bank of Australia (RBA) has heralded the NPP’s real-time payments infrastructure as revolutionary, though it is not without its pitfalls. The scammers have been taking advantage of real-time payment clearing to carry out their fraudulent activities, Neely said.

The vulnerability to scams mainly points to the fast settlement service (FSS) infrastructure, which allows for immediate settlement of NPP transactions between financial institutions “without settlement or credit risk.”

Neely shared several reasons that NPP and FSS contribute to the proliferation of online scams. First, the lack of verification time enables scammers to receive illicit funds before they can be detected and blocked, leaving victims little to no recourse for recovering their money.

Next, the scammers’ knowledge of social engineering and the real-time nature of FSS provide a perfect environment to exploit a victim’s impulsive nature and eventually defraud them. The payment system’s global reach makes it even challenging for authorities to establish jurisdiction and coordinate immediate investigations.

Acknowledging Neely’s fast payments concerns, Michael Anastas, partner at law firm HWL Ebsworth in Sydney, and Patrick Dwyer, legal director at Dwyer Harris in Sydney, talked about the receiving banks’ responsibilities in the face of scams.

Anastas and Dwyer both mentioned how Australia can gather helpful insights from the UK’s Contingent Reimbursement Model (CRM) Code in relation to scam prevention, detection, and response strategies.

From April next year, the CRM Code for authorised push payments will require the paying and receiving banks to split the cost of scams for domestic payments. Customers will be refunded for scams within five days, provided the bank cannot prove fraud or gross negligence.

Reimbursements will be mandatory, regardless of the level of care or due diligence the customer performed to detect and prevent illicit fund transfers.

Urgent call for action

Neely described the level of financial scams in Australia and abroad as a “scam pandemic.” In Australia banks only refund around 4% of scam victims, with 96% of cases failing to meet the threshold for compensation. Sell Securely’s research found that 98% of Australians they believe more measures need to be taken to address these scams.

“To help reduce the incidence of scams the government and the RBA have a duty of care … to undertake extensive advertising campaigns,” he said.

According to Neely, the urgency of this issue requires the campaign to “go live across all channels, print, television, internet — everything we’ve got.”

Anastas said that beyond having education and awareness campaigns, there must be consistent monitoring and evaluation of their level of effectiveness. By having those awareness campaigns in place, many institutions feel that they have fulfilled their obligations, which is a complacency that must be avoided, he said.

Neely suggested adopting the T+2 concept for first-time FSS transfers to allow more time for account verification. Anastas said there was a need to find the “sweet spot” between holding up the transaction for the verification process while still providing the best customer experience.

(Rowena Valeria Carpio, Thomson Reuters)