Tensions Mount Between Banks and Tech Firms Over Online Fraud Accountability in the UK

As of October 7, banks in the UK are mandated to compensate victims of online fraud up to £85,000. On Thursday, Revolut, a digital bank based in London, criticized Meta for not doing enough to combat fraud on a global scale, claiming the tech giant is "falling woefully short."

For years, tensions have simmered between financial institutions and tech companies, as banks feel they bear most of the financial burden for fraud occurring in the online space. Now, those tensions are flaring up in the UK as the debate over who should shoulder the responsibility for compensating victims of online scams intensifies.

The new rules require banks to reimburse victims of authorized push payment (APP) fraud up to £85,000, a scam where individuals are tricked into transferring money to criminals posing as legitimate service providers or businesses. This compensation, while substantial, is less than the £415,000 initially proposed by the UK’s Payment Systems Regulator (PSR), which faced pushback from the financial sector over the high cost.

The rollout of this compensation scheme raises questions about whether banks are being unfairly burdened with the cost of supporting fraud victims. On Thursday, Revolut publicly criticized Meta for its lack of action in tackling fraud and suggested that tech platforms should share the financial responsibility of compensating victims. According to Revolut's head of financial crime, Woody Malouf, social media platforms like Meta have little incentive to combat fraud effectively because they do not bear any financial responsibility.

The idea that tech companies should contribute to fraud compensation is not new. Tensions between banks and tech firms have been brewing for some time, fueled by the rise in online scams linked to digital platforms. In June, reports emerged that the Labour Party had drafted proposals to make tech firms liable for fraud that originates on their platforms, though it remains unclear if the government plans to move forward with this initiative.

Legal experts like Matt Akroyd believe that banks could benefit further if efforts to impose liability on tech companies succeed. However, Akroyd also noted that regulating companies outside the payment systems could be a complex issue, making it unlikely that a resolution will come soon.

For years, financial institutions and regulators have urged tech companies to cooperate more in the fight against online fraud, particularly through information-sharing about how criminals exploit social media. At a financial industry event in March 2023, Kate Fitzgerald, head of policy at the PSR, emphasized the need for full transparency from tech firms to understand where fraud is occurring and direct efforts accordingly.

Authorities have frequently expressed frustration with social media companies for failing to take down fraudulent accounts. Rob Jones, director general of the National Economic Crime Centre, noted that convincing tech companies to take decisive action against fraud remains a challenge.

Meta, however, rejects the notion that it should be held accountable for compensating fraud victims. In written evidence to a parliamentary committee last year, the company argued that banks are too focused on shifting liability for fraud to other sectors, a strategy that ultimately benefits fraudsters. Instead, Meta advocates for cross-industry collaboration, highlighting its Fraud Intelligence Reciprocal Exchange (FIRE) initiative, which allows banks and tech platforms to share fraud-related data to improve fraud detection systems.

In a statement to CNBC, Meta encouraged more financial institutions, including Revolut, to participate in initiatives like FIRE, emphasizing that fraud is an issue that spans multiple sectors and can only be effectively addressed through joint efforts.