Bank Scam Reforms: Will they work?

2 November 2024 in Banking and Finance | 6 min read

This article outlines the upcoming reforms which aim to address the problem of bank scams. Specifically, the Treasury Laws Amendment Bill, which proposes a Scams Prevention Framework. The article discusses the background and details of this proposed Bill and the unfortunate omissions and shortcomings of these bank scam reforms.

Introduction

The Australian Financial Crimes Exchange (AFCX) recorded $1.5 billion in scam losses within Australia in 2023. With the growth of the digital economy, scammers have exploited cryptocurrency exchanges among other means to transfer funds out of Australia’s regulated banking system, rendering the recovery of fraudulently acquired funds very complex. Australia’s existing scam framework not only fails to adequately protect scam victims, but also makes the victims liable for the loss they suffered, considerably undermining trust in the digital services and electronic banking. In response, calls for modernizing Australian laws to combat increasingly sophisticated scams have gained momentum. This article examines the reform proposals from September 2024, which shift greater responsibility onto banks, aligning with international approaches to scam prevention.

Global Developments in Bank Scam Reforms 

The United Kingdom introduced a pioneering scheme effective from 7 October 2024, requiring banks to reimburse customers unless the customer acted fraudulently or with gross negligence. The UK Payment Systems Regulator (PSR) mandates that banks refund scam victims up to £85,000 within five days. After reimbursement, the banks can recover a portion of these funds from the receiving institutions that accepted the fraudulent transfers. This model incentivises financial institutions to shut down potentially fraudulent accounts and prioritise scam prevention.

In New Zealand, the Department of Commerce and Consumer Affairs has called upon the banking industry to consider a voluntary reimbursement scheme and to take immediate actions to protect consumers, recognising that tackling scams is not solely the victim’s responsibility. Singapore’s scam liability framework similarly places obligations on both telecommunications and banking providers to block unauthorised sender IDs and mitigate scam costs.

In contrast, Australia’s current approach reflects strong resistance from the banking sector to compensate scam victims, who are left largely financially responsible for their losses.

Treasury Laws Amendment Bill 2024: Scams Prevention Framework

The Treasury Laws Amendment Bill 2024 (“Bill”) proposes amendments primarily to the Competition and Consumer Act 2010 (Cth) to mandate that financial institutions implement robust anti-scam measures and impose obligations on banks. The Bill introduces the Scams Prevention Framework (“Framework”), which is an economy-wide reform that adopts a whole-of-ecosystem approach to reduce gaps which scammers can exploit.

It is worth noting that the Framework forms part of a broader effort by the Australian Government to modernise laws to meet the demands of the digital age, which includes recent reforms to Australian privacy law, anti-money laundering regulations, cybersecurity protocols, online safety, and restructuring payment systems. 

Key Reform Proposals

The Bill outlines the following essential reforms to modernise Australia’s scam prevention and protection framework:

Applicability

Section 58AC of the Bill proposes that the Framework would apply to regulated sectors of the Australian economy that are designated by the Minister for Financial Services, including but not limited to banks, insurance businesses, telecommunication providers, and digital platform providers (for example social media, paid search engine advertising and direct messaging services).

Apart from the current regulated sectors of the economy, the Bill also provides a mechanism to enable expansion to other sectors as scam evolves alongside technological advancements and scammers shift their activity to target consumers through other sectors (see section 58AE of the Bill).

In designating a sector of the economy, the Minister is obliged to consider factors relating to the scam activities in the sector. Other factors are to be considered, such as, the effectiveness of existing anti-scam measures within the sector, and the potential benefits and risks of subjecting a sector to the Framework.

To ensure extensive coverage, the Bill defines “SPF consumers” in subsection 58AH to include residents and visitors in Australia as well as small businesses with fewer than 100 employees. This broad scope reflects the far-reaching impact of scams and underscores the need for a comprehensive approach to protect Australia’s economic interests.

Definition of Scam

Section 58AG of the Bill broadly defines a scam as any attempt to deceive SPF consumers, directly or indirectly, into actions that would cause harm or loss, irrespective of whether the attempt is successful. This broad definition captures various scam activities and obliges regulated entities to take a proactive approach to address all stages of scam life cycle, including when a loss may not have occurred.

The Bill distinguishes scams from other types of fraud by excluding unauthorised fraud that does not involve deceptive actions targeting consumers. As a result, certain cybercrimes and unauthorised payments may fall outside the scope of the Framework.

Principle Based Obligations for Regulated Sectors

The Bill establishes strong principle based obligations for regulated sectors, requiring them to prevent, detect, report, disrupt, and respond to scams, supported by robust governance measures. The key obligations are outlined as follows:

SPF Principle 1 – Governance (Sections 58BB–58BH): Regulated sectors must establish policies and procedures for managing scams, keep proper records, and report on scam activity. Entities are also required to develop performance metrics to evaluate policy effectiveness. These requirements ensure proper documentation of scams and facilitate the dynamic adaptation of risk management strategies.

SPF Principle 2 – Prevention (Section 58BI): Regulated entities are obliged to take reasonable steps to prevent scams from affecting consumers, including assisting consumers to identify scams and provide warning to the class of consumers who are exposed to a higher risk of being targeted by a scam. This principle compels the entities to introduce robust systems that prevent unauthorised platform access and mitigate potential manipulation of consumers. Failure to meet this obligation can lead to civil penalties under Sections 58BJ and 58BK.

SPF Principle 3 – Detection (Section 58BN): Regulated entities have strong obligations to take reasonable steps to detect scams either in progress or post-occurrence and identify impacted SPF consumers. Non-compliance with the obligation attracts civil penalty.

SPF Principle 4 – Reporting (Section 58BQ): Entities are required, upon request by SPF regulators such as the Australian Competition and Consumer Commission (ACCC), to report and share information about scams. This requirement facilitates inter-agency data sharing across related sectors, enhancing coordinated scam prevention.

SPF Principle 5 – Disruption (Section 58BV): This principle requires entities to take reasonable steps to disrupt and prevent losses from scams that are suspected to be in progress. It includes informing consumers of suspected scams and sharing intelligence with SPF regulators. The provision grants a 28-day “safe harbour” protection period, allowing regulated entities to take responsive actions without penalty when acting on actionable scam intelligence.

SPF Principle 6 – Response (Section 58BZA): Entities are required to provide accessible and transparent dispute resolution mechanisms to lodge complaints about scam, and easy channels for consumers to report scams.

What the Bank Scam Reforms Do Not Do 

Unfortunately the Bill does not include any mandatory reimbursement by a bank as has been introduced in the UK. This is unfortunate because banks are central to each transaction, have access to large volumes of data regarding transactions and have the resources to introduce much improved computerised detection and and warning systems.

The Bill does not introduce any specific obligations on banks to analyse transactions, report potential risks to customers or immediately notify customers of suspect transactions.

The Bill designates the Australian Financial Complaints Authority (AFCA) as the sole external dispute resolution scheme for the financial sectors. AFCA was established after the banking royal commission (final report 1 February 2019). The interim report of 28 September 2018 stated that the reason for misconduct by financial services entities “seemed to be greed – the pursuit of short term profit at the expense of basic standards of honesty”. In Commissioner Hayne’s interim report in 2018, he noted that some misconduct by financial services entities was known to regulators. Unfortunately AFCA’s performance in satisfying consumer claims does not seem to have improved the situation since Commissioner Hayne’s interim report.

Key Takeaways

The proposed reforms recognise the increasing difficulty for customers to detect sophisticated scams and the impracticality of holding victims solely liable. The Bill represents a minor improvement in Australian scam liability framework, imposing some obligations on banks and financial sectors, which are in a better position to address scams than individual customers. By acknowledging the inadequacies of the current framework, these reforms offer a small step towards the global consensus that scam victims should not bear sole responsibility for their losses.

How can BSM Sydney Lawyers assist you?

At Brander Smith McKnight, our Sydney lawyers have extensive experience in handling bank scam recovery cases. If you have been impacted by a scam and need guidance on recovering your funds, our banking and finance lawyers are here to provide the most up to date and relevant advice and to quickly explore the best recovery options available to you. You may be able to pursue action against the scammer or the financial institution involved. Contact BSM, Lawyer Sydney for a free 20-minute consultation to discuss your specific situation and potential recovery options.

BSM Lawyers Sydney are conveniently located in Sydney CBD, Parramatta, Sutherland, Shellharbour and Wollongong.