UK Online Safety Bill Can Reduce Authorized Push Payment Fraud 

The U.K. Online Safety Bill was introduced in the U.K. Parliament on March 17, 2022, to curb online harms by significantly increasing the responsibilities of social media firms and search engines to monitor content posted on their platforms. 

The core concept of the bill is the imposition of a new online duty of care on platforms, requiring the removal of illegal content — and for “high-risk, high-reach” services, also material that is lawful but harmful. 

A few days before introducing the bill, on March 8, the government added new provisions that will require these companies to prevent fraudulent advertisements from appearing on their platforms. 

Read More: New UK Provision to Hold Big Tech Responsible for Paid Ads From Fraudsters 

The new duty added to the bill focused on fraudulent paid advertisements, whether they are controlled by the platform itself or by an advertising intermediary. This includes ads with unlicensed financial promotions, fraudsters impersonating legitimate businesses and ads for fake companies. 

The burden will be placed on the platforms, which will need to put in place systems and processes to prevent the publication, or hosting, of this type of advertising and remove it as soon as they are made aware of it. 

Authorized Push Payment (APP) fraud is a type of fraud where victims are tricked to voluntarily, but unknowingly, send money to fraudsters under false pretexts. These scams usually start online with fake posts or advertisements to convince victims to send money. 

The online safety bill will increase the duty of care for platforms and search engines to proactively identify and remove fraudulent advertising, which includes APP frauds. The companies subject to this bill may be held accountable if they fail to put in place the necessary mechanisms to remove these ads in a timely manner. The U.K. Telecom regulator (OFCOM) will develop a code of practice with specific measures for platforms’ compliance with these fraudulent advertising duties.  

This new provision will likely help reduce the number of fake ads and scams online, but it won’t change the responsibility that payment service providers (PSP) still have to reduce this risk of APP fraud. 

In the U.K., banks and financial institutions (FI) have a duty to exercise reasonable care with their customers to avoid APP fraud. This duty includes complying with the instructions given by the client, verifying the origin and destination of the money, the amount and the beneficiary. There is not a legal mandate for PSPs, banks and FIs to compensate victims of an APP fraud if they have exercised reasonable care — typically, if they have AML and KYC programs that haven’t detected anything unusual. 

However, the U.K. Payment Systems Regulator (PSR) has been working with the industry to introduce new tools and a new code to reduce APP fraud and compensate victims of APP fraud in some circumstances.  

On the compensation front, the PSR created in 2019 a Contingent Reimbursement Model Code that PSPs can voluntarily adopt — in fact, the largest U.K. banks are signatories of the code — to compensate victims if they have done nothing wrong. 

In January 2022, the PSR closed a consultation where the regulator proposed several measures to fight APP fraud. Under the proposal, some of the largest banks will have to publish data on their performance in relation to APP scams, reimbursement levels for victims, and which banks and building societies’ accounts are being used to receive the fraudulent funds. 

The PSR also proposed new ways for the industry to improve intelligence sharing to enhance detection and prevention of APP scams.   

And last, the regulator is seeking to make reimbursements mandatory to victims of APP scams, although the regulator needs the assistance of the government to change some laws first as the current legal framework would not allow mandatory reimbursement.  

The Online Safety Bill will start the second reading in the House of Commons on Tuesday April 19, and this will be the first time that MPs will have the opportunity to debate the main points of the bill. Given the importance of this bill, and the last-minute additions to the text such as fraudulent advertising, it is possible that MPs will introduce amendments to the bill. 

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