Banks told to tackle online fraud

The Financial Services Authority is encouraging banks to further engage consumers in the fight against online banking fraud, after research found consumer confidence is “fragile”.

Eleanor Hughes, press officer at the FSA, says while the recommendation in the FSA’s Financial Risk Outlook – to be published on Wednesday – is not FSA guidance, it builds upon the rule firms must have systems and controls in place to reduce the risk of fraud and, if firms do not comply with the rule, the FSA could use enforcement powers in extreme cases.

The FSA’s research shows half of active internet users are “extremely” or “very” concerned about the potential fraud risk in making an online transaction and, while consumers are protecting themselves by installing security software on their PCs, over a quarter do not know when they last updated their software or update it infrequently. An additional 5% of online bankers have no security software installed.

The research also reveals if banks shift all the liability for tackling fraud onto the consumer, 77% of users will abandon internet banking, as 95% believe at least some security responsibility should lie with the bank, while 45% believe banks should take sole responsibility.

Philip Robinson, financial crime sector leader at the FSA, says: “Most consumers recognise they have some responsibility for security but they are not necessarily following this obligation through.

“To tackle the losses associated with fraud, banks should continue to drive security and this must include educating consumers on the importance of protecting themselves.”

While many banks are already taking steps to engage consumers, Robinson says banks need to look carefully at consumer attitudes and whether their initiatives are effective in maintaining confidence.

Rob Skinner, press officer at first direct, says: “Consumers are naturally concerned about online crime, but there is a lot they can do to minimise the risks. first direct gives practical advice to consumers on this on its website. For example, we advise people to install a firewall and anti-virus software on their PC, and advise them to check the validity of emails that claim to be from their bank.”

Likewise, Mark Bowerman, spokesperson for the Association of Payment and Clearing Systems (APACS), believes ensuring consumers do not fall victim to online banking fraud is “everyone’s responsibility”.

He says consumers need to use “common-sense” by protecting their PCs and not responding to emails asking for their account details, no matter how authentic they look.

As well as raising consumer awareness, new methods tested by banks to improve internet banking security include two-factor authentication where users are required to enter digits from a physical token and something memorised.

In addition, eWise Systems, which provides software for the financial services industry, has developed account aggregation software which gives consumers the ability to consolidate all their online accounts through one log-in. Managing director Mark Matthews says the software is used by Egg’s “Money Manager” and because it is very secure he has seen an increase in the number of consumers using it recently.

James Thorpe, spokesperson for Egg, says the company also provides a “quick log-in” for consumers which only shows part of their log-in details, gives offers to consumers to buy security software at reduced prices and sends emails with links to the security section of its website.

Despite the FSA research, Thorpe says Egg’s customers still have a lot of confidence in using online banking. He points out fraud losses through internet banking were only £14.5m in the six months to June 2005, which is a lot less than credit card fraud, for example.

However, although the figure is relatively low, APACS says losses have more than trebled since the same period in 2004.

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email emily.perryman@incisivemedia.com.