FRA0052
Written evidence submitted by Santander UK plc
Executive Summary
Santander UK is a retail and commercial bank in the UK and a wholly owned subsidiary of Banco Santander. We currently have over 14 million active customers and employ over 19,000 people. We offer a full range of retail banking services, alongside wealth management and consumer finance solutions. We are the UK’s fourth biggest mortgage lender and have a significant presence in the UK business banking market.
As a large provider of current accounts in the UK, we are very aware of the impacts of the increase in authorised push payment fraud has had on our customers over the past few years. We invest heavily to protect our customers from the risks of fraud. This includes investment in technological prevention, as well as in dedicated teams of specialists that work closely with victims of fraud to break the spell of fraudsters and persuade them not to transfer money. We work closely with industry and policymakers on this topic and support industry awareness-raising initiatives alongside bespoke Santander campaigns.
We welcome the decision of the Home Affairs Select Committee to launch this inquiry into fraud. Fraud is a complex topic, and collaboration between different industries and policymakers will be vital in creating an environment where criminals are prevented from reaching potential victims. As such, we have responded to those questions where we feel we can add most value to the Committee’s work. We would be delighted to provide further information on any of the below.
How offenders are committing fraud and the impact of this fraud on victims.
As UK Finance has noted in its submission to the Committee, online fraud and scams today focus mainly on using social engineering on victims to enable their crimes. Using a variety of methods, including phone calls, texts, emails and communications on social media, criminals aim to trick people into authorising payments to the criminals, a technique known as authorised push payment (APP) fraud. These sophisticated techniques are an effective means of tricking victims out of money, but can also have a devastating emotional impact.
Fraud is an issue which impacts everyone across the UK – accounting for 40% of all criminal offences in England and Wales, as the Committee notes. It may even be the case that this is a significant underestimation though, as the National Crime Agency recently asserted its belief that 86% of fraud instances are estimated to go unreported.[1] As such, all demographics and age ranges are at risk of being targeted. Since the start of 2023, our data has shown that customers aged 19-34 report the highest proportion of fraud incidences, accounting for 33% of incidences in total. However, older customers report losing the most when they are victims of scams, accounting for 36.4% of losses (despite being only 18% of fraud incidences in the same period).
As UK Finance figures show, the cumulative impact of these fraud losses is significant. In 2022 over £1.2 billion was stolen from consumers; money which criminals can use to fund other illegal activities, or to reinvest in committing further fraud.
As noted above, the cost of fraud is not merely financial. The significance and importance of the severe emotional damage done by fraud cannot be understated. As the Lords Fraud Committee Report notes, “The emotional impact can be even more traumatising. Victims of fraud are socially engineered by malicious fraudsters, many will face a crisis of confidence and lose trust in the authorities and people that surround them, and some may suffer devastating mental health consequences.”[2]
A lot of work has gone into rectifying the financial costs of fraud on victims, with policymakers, regulators, consumer champions and the banking sector working together to introduce new standards for reimbursement. However, reimbursement alone will not prevent the non-financial harms, nor will it prevent money obtained by fraudsters from being used to fund criminal activities, and as such there needs to be a much greater focus on prevention going forward.
How the emergence of new types of technology, such as artificial intelligence, is being used to commit fraud.
Fraudsters are often early and successful adopters of new types of technology, adapting their methods to reflect the changing world around them. As a result, it is unsurprising that criminals have looked to take advantage of the opportunities afforded to them in a digital world. We have seen criminals:
- Using new telecoms and social media channels to build relationships with potential victims.
- Using new technologies such as Voice over Internet Protocol to increase their capacity for reaching victims.
- Using sophisticated and convincing fake websites or trademarks to convince victims more effectively.
As new technologies continue to be developed and rolled out to the wider public, we can anticipate that criminals will look for opportunities to take advantage. We actively share information with others in the payments ecosystem on emerging trends, such as artificial intelligence, to help identify and tackle risks as they emerge.
Alongside the advances in telecommunications and digital technology, we have also seen criminals look to take advantage of new banking and payments innovations. In particular, world-leading British innovations such as Faster Payments that have allowed people across the UK to easily and quickly transfer money between individuals have also unfortunately enabled criminals to do so as well. UK Finance found that Faster Payments was used to facilitate 96% of APP fraud in 2020, up 34% since 2019.
Given our understanding of how criminals adapt, the priority must be to help prevent criminals from persuading victims to make payments in the first place. Santander and other banks have invested significantly in raising awareness amongst the general public about the risks of fraud, and the danger signs of fraud. However more needs to be done, to develop more imaginative and targeted ways of warning customers. We also need to develop a policy landscape that prevents criminals reaching potential victims. Otherwise, solutions to prevent fraudsters from utilising new innovations for fraud will also deprive the wider public of the benefits of innovation.
The role of internet providers and social media providers in enabling or preventing fraud and actions they could take.
UK Finance found that 79% of all reported authorised push payment scams originate online. 60% occur on social media, and given its scale it is unsurprising that 58% occur on Meta-owned platforms such as Facebook, Facebook Marketplace, Instagram and WhatsApp.
As we live our lives online, communicating and shopping via digital platforms on our mobiles or laptops, it is vital that policymakers consider how necessary safeguards can be introduced to protect people from fraud. Measures such as the ban on fraudulent advertising introduced in the Online Safety Bill are helpful, but remain insufficient given the scale of fraud that takes place between peers.
We welcome commitments on firms publishing fraud statistics as set out in the Fraud Strategy. Strategies used by the financial sector could also be applied to the technology sector, such as clear warnings on the sites themselves regarding fraud. This would make consumers more aware of the risks they face. We believe this could be particularly valuable because it would urge the need for critical thinking at the very moment the consumer (for example) is looking at the product and price, not on a separate window when they are proceeding with payment.
The cross-cutting nature of fraud, e.g how it may start as one type of fraud and progress into another.
Many types of fraud, perhaps most notably romance scams, begin as emotional manipulation, before becoming financial fraud as well. Since the basis of a significant proportion of APP fraud is social engineering, victims are likely to be manipulated into losing further monies, or facilitating further crimes (for example by becoming a money mule).
The propensity for these types of fraud to change and adapt highlights the vital importance of preventing fraudsters from reaching potential victims in the first place. The experience of our ‘Break the Spell’ team, which works with victims trying to send money at the behest of scammers, can take weeks to work with an individual to prevent a scam. Scammers can invest months into manipulating victims before payments are made. It is only by preventing victims from being reached in the first place that we can prevent fraud.
It is also worth reiterating here that victims who are financially reimbursed must still deal with the emotional harm suffered by their manipulation and defrauding. We believe prevention is the only viable solution to this.
Reporting, Investigating and Prosecuting of Fraud
The effectiveness of the current system for reporting investigating and prosecuting fraud, including work with international partners in tackling fraud.
We believe that the existing mechanisms for reporting fraud need to be improved. Gaining an accurate understanding of how fraud is impacting consumers and how fraudsters are innovating is vital, if we are to effectively tackle the real-world challenges criminals pose. We believe there should be a simplification and streamlining of the reporting options for consumers, allowing them to report incidences of fraud once, through their preferred channel.
It is clear that banksand payment service providers, alongside all organisations in the fraud ecosystem such as the big tech and social media firms where so much fraud originates, have a key role to play in the reporting of fraud. Policymakers should look to build on existing industry work to improve data gathering and sharing around fraud.
We also welcome the recommendations in the Fraud Strategy that fraud be treated as a strategic policing requirement, and that a new team be created within the intelligence forces with a focus on fraud. It is vital that law enforcement have appropriate resources to tackle a crime that represents 40% of all reported crimes.
As the Committee notes, there is an important international element of fraud given the way new digital technologies enable people to communicate and transfer money across borders. Whilst this is clearly a challenging area for Government given its lack of jurisdiction abroad, we welcome steps that are being taken to tackle financial crime internationally, through international partnerships, projects and funding initiatives.
As digital technologies cross national borders, international collaboration is vital to tackle fraud. We welcome the international partnerships, projects and funding initiatives where the UK Government aims to reduce the prevalence of financial crime. Given the international nature of scams and the sectors which they can use to reach victims, ongoing international dialogue is vital.
The response of the criminal justice system to rising fraud, including in sentences and other outcomes
It is not Santander UK’s place to comment on how the criminal justice system is responding to fraud. However we would re-emphasise that prevention of fraud remains a key challenge in reducing the incidents experienced, protecting people from emotional harm, and reducing any demand on the criminal justice system. Research commissioned by Santander found that, far from being viewed as a minor crime, fraud is seen as a more severe crime than robbery or arson. Fraud is a serious crime that can have devastating impacts on victims, and it is important that fraud is acknowledged as such.
Given that it is estimated 70% of fraud either originates aboard or has an international element, what is being done to prevent fraud arising through those international channels?
We are aware the Government plans to host an International Fraud Summit in 2024 and welcome this. There is clearly a leadership role for the UK when it comes to tackling fraud, given the strong reputation of our financial services sector internationally. We would encourage Government to use this summit to enable countries to share best practice and to agree to joint approaches to preventing fraud from taking place in the first place. This is something Santander already does, sharing insights and best practise across the countries where we operate.
What other countries are achieving in terms of detection, prevention and prosecution of fraud
There are a number of countries which policymakers could consider when looking at best practise in preventing fraud. UK Finance will reference some of these in their submission, including Australia, Singapore, Brazil and the Netherlands. We would encourage the Government to consider what lessons could be learned from these.
We would also note that, given the strong international component in tackling fraud, we might look to existing multilateral models for inspiration. The Financial Action Task Force (FATF) provides an important role in coordinating a multilateral response to tackling money laundering and terrorist financing, and we believe that a similar body focused on fraud might help drive international standards and cooperation.
How better to collect and use data on the scale, cost and nature of fraud
As previously stated, collecting accurate, usable data is vital in ensuring that industry and policymakers can appropriately respond to the challenge of preventing fraud. We believe that people should be able to report a fraud once, through their preferred channel of communication, and that this data then be shared with relevant parties (such as banks, social media firms, and law enforcement).
The ease and simplicity of gathering this data is particularly important as we know the emotional cost of being a victim of fraud can dissuade victims from reporting. It is likely that currently reported levels downplay the prevelence of fraud, and it should be made as easy as possible for victims to report.
Government’s Response to Fraud
The Home Office’s progress to date on tackling fraud.
We welcome the positive intent of the Government’s Fraud Strategy, not least as it recognises the importance of this topic. It is particularly important for the Home Office and Government to take a strategic view on fraud due to its inherent complexity, and the way it impacts multiple departments at Whitehall. This can be seen by the way in which recent measures to tackle fraud have been driven by the Home Office (Fraud Strategy), HM Treasury (Financial Services and Markets Act) and the Department for Digital, Culture, Media and Sport (Online Safety Bill).
We believe there is a risk that having so many departments play a part in the solution of tackling fraud could result in increased difficulty in taking a more holistic view. We would particularly note that the expectations on financial services firms to prevent fraud are different to other sectors, potentially reflecting the particularities of how they are regulated. We would encourage Government to consider how, in other sectors, it can move beyond voluntary charters and place more mandatory expectations on other sectors in line with those on financial services firms. The nature of fraud is such that a financial services firm will only enter the ecosystem once initial contact and manipulation have been completed and the fraudster has become confident their victim will make payments.
Whether its recently published Fraud Strategy does enough to combat fraud
We believe that the recently published Fraud Strategy is a helpful starting point, but that more needs to be done. We welcome measures included in the Strategy, including positive steps around mass-text aggregators, cold calling, SIM farms, the Online Safety Bill, Online Advertising Guidance, re-platforming of Action Fraud and the inclusion of fraud education in the curriculum.
However, we believe more needs to be done, given the scale of the fraud challenge faced by the UK. In particular, we still believe that prevention needs to be the primary focus of Government measures to tackle fraud. Government recognised the role that technology and telecommunications play in enabling fraud, and we believe it is vital that these industries do more to tackle this challenge.
Whether the current machinery of Government is sufficient in tackling fraud
As noted above, a challenging aspect of tackling fraud is that it requires cross-departmental coordination and responsibility. Measures need to impact multiple industry sectors, various aspects of the law enforcement and judicial systems, and have a domestic and international reach. The appointment of the new Anti-Fraud Champion is a very positive step and is already driving change. Nevertheless, we believe that more can be done to take a holistic view of the measures (mandatory and voluntary) being proposed across government. By doing this we can both identify gaps which criminals may seek to exploit, and areas of duplication where additional regulation or voluntary commitments may not be needed.
October 2023
[1] National Strategic Assessment (NSA) Campaign 2023 - Fraud - National Crime Agency