Transfers from a bank account by other than the true owner can be a consequence of hacked data rather than customer fault yet the institution may ‘deem’ the electronic payment genuine under its terms and conditions; these have yet to be tested, says Andrew Fulton of 20 Essex Street, but the jurisprudence on CHAPS instructions is not encouraging.
In the case of electronic payments, banks are well aware of the risks of fraud and undoubtedly could do more to prevent it. Remarkably, it emerged in the wake of the Bangladesh heist that the Fed (the central bank of the world’s largest economy) does not even carry out real-time monitoring for suspicious transactions, still less compare such real-time activity with prior usage of its customers’ accounts. Contrast this with credit card providers who, well aware that it is their own money at risk, will use sophisticated and sensitive triggers and track patterns of behaviour in order to generate red flags and block payments.
The demand for online and mobile banking inevitably creates a trade-off between security and convenience. That in turn means that the risk of loss arising out of less-than-perfect security must be allocated as between banks who provide the service and their customers who use it. There are powerful policy reasons for saying that there should be a systematic reallocation of that risk so that global financial institutions with the resources to combat fraud have a greater incentive to do so.
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Andrew Fulton is a leading junior at 20 Essex Street specialising in banking and fraud disputes. Don't miss his next speaking engagement which is on 2 November at the Eight Club, Moorgate. The seminar will focus on civil fraud aspects of corporate corruption. Spaces are filling quickly, so please contact email@example.com to register.