My Lords, there do not appear to be any definite figures for the amount and extent of fraud in the UK. There is, however, general agreement that it is very, very large, that it is growing rapidly in volume and sophistication and that it can ruin people’s lives. The CPS reckons that fraud is now the most commonly experienced crime in England and Wales, with 5 million offences in the first half of this year. That is a rise of 32% on the same period last year—and all these figures, alarmingly large as they are, may well understate the case. The National Crime Agency says that fewer than 20% of cases of fraud are reported, with many victims too embarrassed to make a report and perhaps, in the financial sector, too fearful of damaging their reputation.
The question we are dealing with this afternoon asks what the Government are doing to protect vulnerable consumers from financial fraud. The FCA defines “vulnerable” as
“some-one who, due to their personal circumstances is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
The FCA also lists some of those circumstances. They include physical and mental health problems, financial problems, life events and the lack of capability and/or confidence when dealing with finances. In truth, the list probably covers most people at some point in their life. But it is clear that the young, the elderly and the digitally innocent will be at significant risk. Not surprisingly, these groups are the frequent targets of fraudsters.
Also not surprisingly, fraud has moved heavily online: some 85% of all fraud in the first half of last year was cyber-enabled and 50% of adults were exposed to fraudulent ads each month. Many of these ads are carried by social media and many promote investment scams. They often operate by mimicking a genuine website such as HMRC’s or a bank’s. They also operate by placing ads on online platforms. Last week the Times reported that TSB data showed that seven in 10 victims of investment scams were targeted through Instagram alone.
Of all the investment scams reported to TSB to the end of August this year, scams based on Instagram accounted for 62%, on Snapchat 11%, on Google 10% and on Facebook 8%. That is a 70% score for Mark Zuckerberg and Meta. Since then, Google has all but eliminated scam adverts on its search engine. It did this simply by introducing rules that required all financial advertisers to prove that they were authorised by the FCA. TSB has had no reports of people falling victim to fraud through Google since the end of August. Instagram and Facebook have not followed suit. Can the Minister say what pressure is being brought to bear on Meta by the Government? Why should Meta be allowed to profit from scam ads and expose its members to a direct risk of fraud?
It is clear that the Government understand the seriousness and scale of the problem of financial fraud, and they have made some very significant interventions. Last month they established the Joint Fraud Taskforce, a private and public sector partnership, to focus on issues considered too difficult for a single organisation to manage alone. It is to be hoped that the new organisation will be able to plot a clear course through the jungle of agencies and regulators with interests and responsibilities in the area. It might even be able to take a leading role, so perhaps the Minister could tell us a little more about the objectives and working methods of the new task force, what targets it has and to whom it is accountable?
My Lords, I really came to this debate as a spectator, because I wanted to hear the Government’s response to the excellent issues raised by the noble Lord, Lord Sharkey. However, there is one aspect of the way the issue was posed which gave me pause for thought. The way in which it has been framed makes me think that there is a wider issue involved.
The problems of financial fraud affect everyone, in the sense that the noble Lord reflected in his Question. I truly believe that we are all vulnerable. Characterising a subset of people as vulnerable implies that maybe the rest do not need to worry, but in one way or another, at some stage of our lives, we are all vulnerable. Those of us who have an arrogant view of our own capabilities are probably even more vulnerable than those who know their weaknesses.
Whatever is done in this area has to be part of a wider assessment of what the Government can do to provide protection. What leads on from that is that taking action on fraud is too late; action is required before the fraud takes place. The problem we have is that the system is a commercial one, in which a lot of money is involved. It is hardly surprising that fraud and crime will occur; crime goes to where the money is. We have a systemic problem of fraud; it is part of the natural operation of the system that it will arise, so action really needs to be taken much more down the line than after the event, when people suffer. It is at the early stage where the most effective action could or should be taken.
Of course, we have to talk in this context about online fraud, and we look forward to debates on the online safety Bill. The situation has been worsened by the pandemic, with our reliance on online means of communication and commerce increasing, so the opportunities for fraud have increased with it. My own interest is almost inevitably in pension fraud, which is the area that I am most familiar with. It is clear that an awful lot of fraud that occurs in this area is unreported, because people do not know or do not find out until it is too late—or they do know, but they are ashamed and feel foolish. I am not as familiar with other areas of financial fraud, but my assumption is that it is broadly the same there.
I congratulate the noble Lord, Lord Sharkey, on securing this short debate on what is becoming an increasingly serious problem, as he so eloquently set out. I at last detect that the Government are starting to take it more seriously, and that is greatly to be welcomed, but we have a very long way to go.
This debate is about protecting vulnerable people from fraud, but I make a similar point to the noble Lord, Lord Davies. The reality is that we are all at risk from fraud. The impact of fraud is not only financial; it can leave people feeling stupid, ashamed and under attack, as they are continuously bombarded with emails, calls and texts, leading to serious anxiety and depression. That can be especially true of people who are more sophisticated; they can feel particularly stupid, which is unfair, and may not report it because of that feeling of shame. A large proportion of fraud is not reported. Nobody should feel shame about having been scammed; fraudsters are very clever at finding vulnerabilities.
Why is it so easy for fraudsters? I think the simple truth is that there is a whole range of parties who facilitate it, and who have no incentive to prevent it. Here are just a few examples. We have already heard about social media and other tech giants, which are paid by fraudsters to advertise fake investment or pension deals, as well as providing the platforms that allow fraudsters to contact and groom potential victims. The obvious question for the Minister is why the Government have agreed to include user-generated fraud in the online safety Bill but not frauds where the companies have actually been paid by the fraudsters. I read just this morning that the Prime Minister has said that the Bill will force the tech giants to remove adverts that promote people smuggling. If we can do that, why on earth can we not also force them to remove fraudulent investment adverts? This is just wrong, and I urge the Government to think again about this obvious gap. The tech giants should have a clear duty of care and liability to their users for any fraud that they facilitate.
My Lords, there is one great advantage of there being a limited number of speakers in a short debate, which is that it really does not make a whole lot of sense for someone in my winding position to go and repeat everything that has just been so well said. I particularly want to raise two issues that I think have not been covered here, and will then make a final comment.
The first is the regulatory perimeter, which determines which activities the FCA regulates and therefore when it will or will not tackle financial misbehaviour by financial firms. The perimeter sets a boundary on regulated activities and has been given as the reason why the FCA has failed to act in so many scandals: the asset-stripping scandal of the RBS Global Restructuring Group, which destroyed small businesses and their owners by undervaluing their assets in order to seize them; the mis-selling of interest rate caps to small businesses; the abuse of the Libor-setting system, which mispriced trillions of loans across the globe; and endless investment scandals, of which London Capital & Finance is just one of the more recent.
I join the noble Lords, Lord Davies and Lord Vaux, in saying that ordinary people, even savvy people, usually have absolutely no idea that the financial product promoted or sold to them is unregulated, particularly since other activities carried out by the same firm may indeed be regulated. Pretty much everybody other than a highly sophisticated multinational with a phalanx of lawyers is exposed to financial fraud in one way or another today. Of course, we need some special protection for people defined as vulnerable, as described by my noble friend Lord Sharkey. But, as others have said, today everyone needs financial products just to participate in normal life, so rules based on caveat emptor—buyer beware—which is the backbone of the current system, are simply not good enough.
I have long argued that regulating activities is a charter for mis-selling. If the FCA authorises any activity carried out by a financial company, it should regulate all its activities so that the line is clear. In other words, regulate the firm and all the activities it is involved with. Other countries do it without serious problems.
2:27 pm
Lord Rosser (Lab)
I too thank the noble Lord, Lord Sharkey, for securing this debate. I am afraid I will be repeating some of the figures that have been quoted, but most of my comments will be directed to what has or has not happened as far as the Government are concerned during the period of the pandemic.
As the noble Lord, Lord Sharkey, said, the Crown Prosecution Service has said that fraud is now the most commonly experienced crime in England and Wales. Using data from the crime survey for England and Wales, the Office for National Statistics reported that there were 5 million fraud offences in the year ending June 2021, and that this represented a 32% increase compared with the previous year. There were large rises in consumer and retail fraud, advance fee fraud and fraud that just comes under the category of “other fraud”.
In contrast, the ONS highlighted that crimes such as theft and robbery saw falls during periods of lockdown. It said that the data may show
“fraudsters taking advantage of behaviour changes related to the pandemic”,
such as increased online shopping and increased savings. Some 26% of offences resulted in the loss of money or property with no or only partial reimbursement. The National Fraud Intelligence Bureau reported a 36% rise in fraud offences in the year ending June 2021 compared with the previous year, which included a 34% increase in online shopping and auction fraud and a 51% increase in financial investment fraud.
Some people are of course more at risk of becoming a victim of financial fraud—for example, individuals with a mental health problem or dementia. People who have experienced mental health problems are three times more likely than the rest of the population—23% versus 8%—to have been a victim of an online scam. Age UK has highlighted the impact of fraud on older people in England and Wales and, based on an analysis of Crime Survey for England and Wales data between 2017 and 2019, has said that an older person becomes a victim of fraud every 40 seconds. Age UK has said that alongside financial losses, becoming a victim can also
“seriously affect quality of life and wellbeing”,
with many people experiencing a deep sense of shame, embarrassment, anxiety and loss of independence following a scam—and that of course often leads to non-reporting.
The people engaged in such financial fraud pray on us all, as has been said, but particularly on the vulnerable. It is a premeditated, carefully planned, well-resourced and systematic activity, with those involved knowing precisely what a devastating impact they are having on their victims. They deserve everything they get and more, if and when—and it is not often enough—they are brought to justice.
My Lords, I add my thanks and congratulations to the noble Lord, Lord Sharkey, for securing this very important debate and for all the very valuable points he has raised. I of course agree that we should protect people from fraud, particularly vulnerable people who are often targeted by callous and ruthless criminals. As he said, fraud is now the most common crime type in the country, accounting for some 40% of offences in the year ending June 2021, according to the Crime Survey for England and Wales. It is estimated there were 3.9 million victims of fraud in the same period.
As the noble Lords, Lord Vaux and Lord Davies of Brixton, said, we are all vulnerable to it. I almost became a victim of it a couple of weeks ago. It was not obvious that I was being scammed at first glance, but it nearly happened to me. Of course, the impact extends beyond financial losses. As the noble Lords, Lord Rosser and Lord Sharkey, said, the emotional and long-lasting harm that people can suffer is horrendous. Fraudsters can be very sophisticated and will exploit any means they can to trick innocent people out of their hard-earned money.
The noble Lord, Lord Rosser, is absolutely right to point out the vulnerabilities during Covid, with so many people at home online, as opposed to out and about. For those who are very vulnerable, those impacts can be felt all the more, so we are focused on stopping unscrupulous fraudsters in their tracks and supporting victims so they can recover and protect themselves in future.
We are aiming to step up the whole-system response to fraud, which is the right way. While it is vital that we crack down on criminals behind scams, fixing the law enforcement response is just one part of the solution, as noble Lords have pointed out during today’s debate. To disrupt organised criminals and safeguard the most vulnerable, we need to prevent it from happening in the first place, as noble Lords have said. But we cannot, as government, do it alone. That is why the Home Office is working across government, law enforcement and the private sector—the private sector is really important in this—to better protect the public, reduce the impact on victims and ensure fraudsters are brought to justice.
Lord Rosser (Lab)
The Minister said that she would respond to any questions that she had not replied to. Will that include my question: do the Government really think that they did enough to protect vulnerable people during the pandemic, bearing in mind the substantial increase in the number of fraud cases?
I most certainly will get back to the noble Lord, Lord Rosser, on those statistics, and any facts and figures I have for him for during that period, because it must have been a very vulnerable time for an awful lot of people.
2:53 pm
Sitting suspended.
Following the LC&F debacle, the FCA’s relatively new CEO Nikhil Rathi said that the FCA would change its approach to tackle more effectively the issues of fraud risks that sit outside the perimeter of regulation, but he gave no detail. Will the Minister tell us whether there has been progress? Mr Rathi also insisted that he needed more investment and resources to take on the task. Will he get them? At one time the senior managers regime was touted as a possible tool for tackling such fraud and abuse of clients, but the FCA has used that with such deference that it no longer receives any respect. Will the FCA get new duties and powers?
My second issue is that of whistleblowers and the dreadful way we treat them in the UK. The United States is probably the exemplar of how to value financial whistleblowers. Regulators and enforcement agencies in the US have told me that whistleblowers are the citizens’ army that enables them to clean up and deter bad behaviour in an industry where money creates so many temptations. They are the canaries in the mine, to pick up the point made by the noble Lords, Lord Davies and Lord Vaux: early action is absolutely critical when fraud begins to arise.
Financial whistleblowers in the US are protected from both retaliation and financial ruin. California has just enacted another step, a new law called “Silenced No More”, to prohibit the use of non-disclosure agreements that are so often embedded in any employee settlement as a gagging clause. Now the EU is moving in the US direction. The UK, once a leader in protecting whistleblowers, is now one of the most risky developed countries in which to speak out. I have complained before that whistleblowers to the FCA are assumed to be troubled people, not vital informers. They are triaged by call handlers trained in dealing with complaints and with minimal financial knowledge. In contrast, in the US a senior financial investigator does the triage to capture early and critical leads.
The protection that the UK regulator offers a whistleblower is simply anonymity: it will not disclose their name to their employer. But most employee whistleblowers are easily identified both by their specialist knowledge and because most will have raised concerns with line managers and others before turning to the regulator. The regulator then stands aside and offers no support if they are penalised, demoted or fired, and will not even give evidence to an employment tribunal—and woe betide the whistleblower who has to go public and reveal themselves to the press, or even to give evidence to Parliament, because the regulator will not act. The norm for whistleblowers in the UK is years of legal battle and financial and career ruin. Even when settlements are made, typically they rarely cover the extortionate costs of bringing the various cases and attempting to resist retaliation.
Whistleblowing protection, little though it is in the UK, is limited to employees. Advisers, clients and accountants—indeed, anyone else—have no protection at all. I heard just this morning from an IFA who has identified potential fraud at a major insurance company and has been unable to report it to the FCA whistle- blowing team, although they attempted to do so, because he/she—I will disguise their identity—is not an employee. If he/she speaks out, he/she will effectively be put out of business as an IFA.
I have a Private Member’s Bill before the House to create an office of the whistleblower to turn this issue around. But I am not precious. What I want to hear from the Minister today is that the Government will now take serious action and come up with legislation of their own if they dislike mine. If we are going to end financial fraud, we have to unleash all the power of that citizens’ army I talked about.
I will make one last comment, because the next piece of legislation that will be used to deal with at least a subset of these issues—online financial fraud—is the draft Online Safety Bill. I have read the various briefings and it is completely beyond me to understand why actions that facilitate fraud through adverts or cloned websites will not be prohibited by the Bill. I cannot understand why, in the draft, paid-for advertising is explicitly carved out of the scope of the Bill. I have no idea what pressures were brought, but frankly the Government ought to dismiss them, and I would say to the Minister that if she and her colleagues do not make changes to the Bill, I think I can guarantee that both Houses of Parliament will. We have had enough of fraud and we need strong, clear action and leadership. I hope the Minister in her answers today will indicate that that will happen.
I have no doubt that in their response the Government will talk about the draft Online Safety Bill, the fraud action plan, the relaunch of the Joint Fraud Taskforce and an apparent government intention to legislate to allow the Payment Systems Regulator to make reimbursement mandatory where a personal or business is tricked into sending money to a fraudster posing as a genuine payee. However, the extent to which proposed legislation, plans and taskforces will address and reduce all the different types of financial fraud and the different ways and channels through which they are perpetrated, as well as providing full financial protection for victims, remains to be seen.
I hope that in their response the Government will set out the specific targets for reducing financial fraud and protecting victims financially, which the various measures that I have no doubt we will hear about in their response are expected to deliver. Certainly to date the Government’s efforts to address rising levels of fraud, not least online fraud, have been woefully inadequate, particularly during the current pandemic. Reductions in police personnel during the last decade have only made matters worse.
I tabled a Written Question in May last year asking the Government
“whether they have broadcast advertisements to warn the public, in particular those who are vulnerable, of scams related to the Covid-19 pandemic; if not, why not; and what plans they have to provide advice about how to avoid becoming a victim of such scams.”
The Written Answer—not from the Home Office—said:
“The government has not broadcast advertisements to specifically raise awareness of scams related to the Covid-19 pandemic.”
The reply went on to say:
“HMG believes the best way to ensure the public’s safety is to make sure that they know how to protect themselves … so that the public know how to spot a scam and protect themselves from them.”
The reply continued:
“We have recently launched a GOV.UK page on coronavirus related fraud and cybercrime including easy-to-follow steps for people to better protect themselves as well as signposting all relevant advice and tips.”
For this Government, too often a GOV.UK page is the remedy to all problems.
I thought at the time that that reply reflected a fair degree of complacency. Now, though, we can ask the question: has the Government’s strategy for protecting the public, particularly those who are vulnerable, from scams during the pandemic been successful? The figures that I have already quoted suggest otherwise.
In addition, according to UK Finance, the public were conned out of £753.9 million in the first six months of this year alone, up 30% on the same period in 2020. The banks have already warned that the period up to Christmas and new year is likely to be the “busiest ever” for criminals looking to trap unsuspecting victims as the pandemic has pushed shoppers online.
It is of course a matter for the Government what they say in their response. But I hope that, if they are going to tell us what they intend and plan to do, and how much money they have spent and will spend, they will also answer the question: why was more effective action not taken to warn the public and particularly vulnerable people of the increased danger of financial fraud from scams and fraudsters during the Covid-19 pandemic? I do not wish to suggest for a single moment that broadcasting advertisements raising awareness of scams during the pandemic—which is what I asked about in my question—would have been the answer to all the problems that have materialised; clearly, it would not. But the Government’s approach has been very complacent and, frankly, it is many members of the public, including the most vulnerable, who have paid the price during the Covid pandemic, both metaphorically and literally.
To improve our collective response, we are leading work on the development of a comprehensive fraud action plan, which the noble Lord, Lord Rosser, knew I would mention, and we will it publish early next year. This will commit key partners in the public and private sectors to do more to tackle fraud. The plan will focus on public engagement to ensure that everyone, including those most at risk, understands the threat and therefore how best to protect themselves.
We know that those most vulnerable to fraud can become repeat victims—that is the horror of this. Despicably, they are placed on what is called a “suckers list” that is then sold on by ruthless fraudsters. It is essential that we improve victim support and make sure that everyone gets the information and help they need to protect themselves.
That is why we as the Home Office are working with the City of London Police to deliver a nationwide rollout of the National Economic Crime Victim Care Unit. It provides an important additional layer of support for people who report a fraud or cybercrime to Action Fraud—on which, more later—where their cases are not investigated by local police, and helps prevent repeat victimisation. The unit is currently supporting 20 forces, with a further rollout planned. As of October this year, it has helped support more than 160,000 victims, and since the start of this year has assisted in recovering almost £1.5 million that people had lost.
It is also very important that we bolster the local support available to vulnerable victims. To do that, the Home Office is supporting National Trading Standards in the rollout of fraud multiagency safeguarding hubs in England and Wales. These local hubs will improve the quality of care for fraud victims by bringing together multiple agencies that can work together to support them, making it easier for victims to navigate their way to getting the help they need. The national rollout follows a successful pilot in Lincolnshire and North Yorkshire during which more than £8 million was saved for individuals and society.
We continue to work extensively with the private sector effectively to “design out” fraud and stop vulnerable people being targeted in the first place. In October, we published three voluntary charters with the retail banking, telecommunications and accountancy sectors. These are partnership agreements to find innovative solutions that will drive down the level of fraud. New initiatives include: a pilot dynamic direct debit system that would introduce a banking authorisation step in applications for new telecommunications contracts, including mobile phone contracts, that have been applied for fraudulently or used for fraudulent purposes; a cross-sector plan to protect customers who have been subject to a data breach from becoming victims of fraud; and leveraging new technology to tackle the fraudulent practice of sending fake company text messages, known as “smishing”.
The progress of these charters will be closely monitored by the Joint Fraud Taskforce, mentioned by the noble Lord, Lord Sharkey, which is chaired by the Security Minister and brings together senior partners from across the public and private sectors. We also intend to develop a suite of charters with other sectors that have a role to play in protecting vulnerable people from fraud, including tech and social media firms.
The noble Lord, Lord Sharkey, and others talked about the harms of the online world. The online safety Bill will provide further protection against fraud. Companies in scope will be required to take action to tackle fraud where it is facilitated through user-generated content. We expect this to have a particular impact on frauds such as romance scams, which cause significant psychological harm to victims.
The noble Lord, Lord Vaux, might stop shaking his head when I say to him and the noble Baroness, Lady Kramer, that we are also considering whether to impose tougher regulation on online advertising, because that may well be the gap that he talked about. We have heard the strength of feeling in the House and in the public domain. The Joint Committee on the Bill will report shortly, and we will examine its recommendations on this issue extremely carefully. The Department for Digital, Culture, Media & Sport—the DCMS—will also consult shortly on a range of proposals to tackle harms associated with advertising. It may have been the noble Lord, Lord Sharkey, or the noble Lord, Lord Vaux, who commented on Google versus Facebook/Meta. I commend Google for what it has achieved. As for discussions with Facebook, I have lost count of the number of discussions that I have had. One thing that we said way back in the day was, “Look, if you don’t sort some of these problems out, we’re going to legislate to sort them out”—and this is where we are now.
On scam calls, as part of our response to fraud the Government are working with the telecommunications industry to tackle telephone-enabled fraud and break the business model of the criminals behind it. Through our joint telecommunications sector charter, providers have agreed a nine-point action plan to tackle fraud through scam calls. This includes commitments to identify and implement techniques to block scam calls and smishing texts. To protect those most vulnerable to telephone scams, DCMS provided £1 million over three years to National Trading Standards to fund the rollout of call-blocking devices to people across the UK. These help those most in need and provide 99% protection from nuisance and scam calls.
On phishing and smishing, we have been working to reduce the threat of phishing emails that can reach the most vulnerable. Last year the National Cyber Security Centre launched its suspicious email reporting service, which of course I encourage the public to use via report@phishing.gov.uk.
The noble Lords, Lord Sharkey and Lord Vaux, both mentioned APP scams, authorised push-payment fraud, where victims are tricked into handing over their money. This targets the most vulnerable with increasingly sophisticated scams that can have such a devastating impact on their lives. The Government are clear that the public should not be left out of pocket through no fault of their own. We have been working with the financial services industry to help tackle APP fraud, including through the implementation of initiatives such as Confirmation of Payee and the creation of the contingent reimbursement model code. Most high-street banks have now signed up to this voluntary code, which was designed to offer increased protection to the most vulnerable. Victims who use these banks will be entitled to reimbursement when they have taken the required steps to protect themselves, or if it is not reasonable to expect them to do so.
We really welcome the work that the industry has undertaken to date, including through this code, but it has clear limitations, including disparity in how different banks are interpreting their obligations and the fact that it does not cover all providers. As such, the Government are now engaging with the Payment Systems Regulator, the PSR, and industry on what more can be done to better protect customers. We welcome the PSR’s recent consultation on APP scams, which set out potential measures to reduce their impact, including mandatory reimbursement of victims. We now intend to legislate to address any barriers to mandatory reimbursement when parliamentary time allows.
Faster Payments, the UK’s real-time low-value interbank payments system, has been a great UK success story. In 2008 the UK was one of the first countries to launch a 24/7 real-time payments system, which now processes more than 3 billion payments a year. However, despite the speed and resilience it offers, banks already intervene in a variety of ways when they suspect fraud, including delaying the processing of payments and contacting customers. At this point I must give a shout-out to my bank, Lloyds, which has done that to me before.
On law enforcement and action fraud, we continue to work closely with law enforcement in line with recommendations from Her Majesty’s Inspectorate of Constabulary and Fire & Rescue Services. This includes working with City of London Police on a refresh and upgrade of the current action fraud service to improve victim experience and the law enforcement response.
To the question from the noble Lord, Lord Sharkey, on the contract, as I said, we are working on plans to refresh and upgrade the current action fraud service, and the competition to find a new commercial partner to deliver that service was launched in July this year. We expect the service to be improved in both usability and effectiveness, which noble Lords have pointed to. Also since last year, City of London Police have increased the number of staff in their call centre, and recent performance data has been quite encouraging, suggesting that between 94% and 98% of victims were satisfied with their service.
The noble Baroness, Lady Kramer, made a point about the FCA. HM Treasury continues to work closely with the FCA to ensure that its duties and powers are sufficient to meet the threats in the financial sector. When I thought about this debate and saw the noble Baroness’s name, I thought, “She’s going to ask about whistleblowing—but in what capacity?” This year, the FCA launched its In Confidence, With Confidence campaign to encourage individuals working in financial services to report potential wrongdoing to the FCA, reminding them of the confidentiality that is in place. I totally agree with her on her point about non-disclosure agreements; that is one that we have discussed before.
Finally, on pension fraud, it is totally unacceptable and devastating that anyone should be cheated out of their savings and their plans for retirement. The Government are absolutely committed to protecting people from pension scams and pursuing those who perpetuate them. In the last two years, we have introduced a ban on pensions cold-calling and changes to the pension scheme registration process to stop fraudsters exploiting pensioners. The inclusion on fraud in the scope of the online safety Bill will also have a strong impact on preventing investment frauds.
I think that I have responded to all the points; if I have not, I shall write to noble Lords. I thank the noble Lord, Lord Sharkey, once more for securing this important debate, and thank the not too many noble Lords who have taken part, because I think that has made it an effective discussion.
The Home Office has also published three new fraud charters, for the retail banking, telecoms and accountancy sectors. The Payment Systems Regulator has published a voluntary code for the reimbursement of victims of authorised push-payment fraud. Not all banks have signed up to the code. As a consequence, the Government now plan to legislate to make reimbursement mandatory. All this is welcome, as is the new inclusion of online fraud measures in the Draft Online Safety Bill.
However, there is still considerable work to be done. One of the reasons for the establishment of the Joint Fraud Taskforce was the existence of many agencies and regulators with at least some responsibility in this area. I counted at least six, and there may be more. That excludes the gatekeeper, Action Fraud, which is a reporting system—the people you contact to report a fraud and who then pass on the report to other agencies so that they may take action.
Action Fraud is critical to the success of the whole system. However, in July 2019, the Times published the findings of its undercover investigation of the unit, which found that the failings of Action Fraud had been well known for years. Right from its hotline going live in 2013, Ministers had to admit that 2,500 online reports were not processed correctly due to a fault in the IT system. In 2015, the firm operating the Action Fraud call centre in Manchester went bust, leaving fraud victims waiting even longer to get through. In 2019, an undercover Times reporter exposed call handlers mocking victims as “morons” and misleading them into thinking their reports were being taken seriously when most were never looked at again.
As a result of the Times investigation, Sir Craig Mackey, a retired police chief, reviewed the organisation. He found that both Action Fraud and the National Fraud Intelligence Bureau were
“significantly hampered by an operating system that is not fully functional and their resourcing levels have not kept pace with increased reporting”.
He also found that Action Fraud failed to answer a third of the calls made to it. A year later, it was announced that steps would be taken to revamp the failed Action Fraud hotline. Police chiefs were looking for a new company to run it. That was a year ago. Can the Minister say why it took so long to take remedial action? Has a new contract been awarded and, if so, to whom?
Action Fraud, or some properly working equivalent, is vital to the fight against fraud, but as recently as this June, Martin Lewis described Action Fraud as “pointless” and said the organisation lacked the necessary funding to tackle criminals. Is Martin Lewis wrong? What reassurance can the Minister give that we now have in place an organisation that is properly run, properly funded and fit for purpose?
Reporting fraud is critical, but so is prevention. In this area, much needs to be done to rein in the social media platforms. As Martin Lewis said recently in evidence to the Joint Committee on the Draft Online Safety Bill:
“Don’t let them off the hook. We need to make big tech responsible”.
We could make a start by making Meta follow Google. We should make it ban ads for financial services by advertisers that cannot prove that they are authorised by the FCA.
The issue raised by the noble Lord, Lord Sharkey, on the plethora of regulators is one that I very much hope that the Government will address. I am really here to hear the response from the Minister, which I look forward to with some interest.
Telecoms companies enable the scammers to bombard us with calls and texts. We probably all suffer this every day. They have no incentive to stop it—they are paid by the scammers for those calls and texts. Further, they continue to allow the spoofing of caller IDs. It is not only being scammed that is traumatic; the feeling of being constantly under attack causes a lot of anxiety. When will we see action to reduce this torrent of calls and texts? Can we not use the Telecommunications (Security) Bill to that effect? You could put out regulations under that to have a go at solving this problem.
The banks provide the means by which the scammers receive the stolen money. Some banks have made real efforts—in particular, the Confirmation of Payee process is a major step in the right direction—but fraudsters are still able to transfer the stolen money and only a relatively small proportion is reimbursed under the voluntary code. It is shocking that we are not told which banks are behaving worst in this respect. Why do we not publish those league tables?
It may be that the payments system itself aids fraudsters: instantaneous payments allow the money to be whisked away through multiple accounts and abroad, or into untraceable cryptocurrency, before the victim has even realised they are a victim, by which time it is too late to do anything about it. Have the Government considered slowing payments down, particularly when making a first payment to a new payee?
As the noble Lord, Lord Sharkey, mentioned, I understand that the Government are at last proposing to make reimbursement mandatory for authorised push payment frauds. However, I have said before that it would make more sense to make the receiving bank—the bank that has handled the stolen money for the fraudster —liable for repaying the money. That would give a real incentive to banks to stop their accounts being misused by fraudsters or their mules. On that latter point, I would be interested to hear from the Minister what the Government are proposing to do about those mules, who are often young people who themselves have been conned into laundering the stolen money.
Whatever we do, it is critical that any victim reimbursement process is clear and simple and has a single point of contact so that it does not add to the trauma that victims experience. The Financial Ombudsman Service has been ruling against banks in over 70% of appeals, which shows that the current system is simply not working. Banks try to push the blame back on the victim, which just adds to the trauma. My own view is that the victim should apply to, and be reimbursed by, their bank, which should recover automatically from the receiving bank, and it would be for the receiving bank to attempt to recover from the fraudster or those who have facilitated the fraud—the social media or telecoms company, or whoever. Section 75 of the Consumer Credit Act works broadly in a similar way. Could that not be a precedent?
Why are so few frauds investigated or prosecuted? Again, this adds to the trauma; it is traumatic if you do not feel that you are being taken seriously by the authorities. I suspect that the poor investigation and prosecution record is down to a combination of insufficient police resources, inadequate specialist training and a lack of appropriate technology. According to the Victims’ Commissioner, only about 2% of police resources is directed against fraud, despite—according to the Government’s own numbers—fraud being 42% of all crime against individuals. That is a huge disparity: 2% to 42%. Action Fraud would be better named “Inaction Fraud”—it is farcical. What plans do the Government have to make improvements in all those areas?
Fraud is also covered by a whole range of government departments: DCMS, the Home Office, the Treasury, DWP and the Foreign Office, among others. I wonder whether that fragmentation contributes to the problem. Would it not be helpful to have one Minister who was given full oversight to ensure that fraud is covered holistically, not just piecemeal?
Finally, I am delighted that yesterday the House approved my proposal for a committee of special inquiry into digital fraud. I record my thanks to the noble Lords, Lord Young of Cookham, Lord Stevenson of Balmacara and Lord Vaizey of Didcot, and the noble Baroness, Lady D’Souza, for their support in that process. I hope that the committee will be able to provide valuable insight into the problem and to make practical and achievable recommendations to assist the Government in solving this scourge, and I hope the Government will be receptive.