Investment fraud has become a serious issue in the UK, leaving countless people financially and emotionally devastated. Every two minutes, someone falls victim to a bank transfer scam, many of which involve fraudulent investments. If you think it won’t happen to you, think again. Fraud prevention is no longer just a recommendation; it’s a necessity.
Stephen, a former solicitor, knows this all too well. After being scammed out of £70,000 in an investment fraud, he recalls the sleepless nights that followed. “I couldn’t sleep, thinking about it. I felt stupid,” he says. Even with his legal background, the scam was sophisticated enough to deceive him.
Real People, Real Losses
Stephen’s story isn’t unique. Another victim, Andrew White, lost £240,000 while buying a house. “I think about it a lot,” White admits. He was fortunate to eventually receive a refund from his bank. However, with recent changes to compensation caps, many other victims may not be as lucky. White reflects, “I thank God this didn’t happen with a reduced compensation level of just £85,000.”
The regulator recently announced plans to scale back refunds for UK fraud victims, reducing the maximum reimbursement from £415,000 to £85,000. Consumer watchdogs, like Which? have expressed outrage, warning that this decision may destroy the lives of victims of high-value fraud, such as investment scams and home purchase transfers.
The Rise of Investment Fraud
Living with multiple sclerosis, Stephen was forced to retire early and began searching for investment opportunities last year. “Bank base rates were on the floor, and I was just looking for a return on my money,” he recalls. He believes he was targeted after responding to an email promoting an investment opportunity. The fraudsters, posing as bank representatives, lured him with the promise of a high-interest, one-year fixed-rate bond offering 11% returns. The fraudsters communicated via email and phone, and their tactics were convincing. “I was reassured because I found their names on the Financial Services Register, and the correspondence had the correct registration number,” Stephen says.
After transferring £70,000 in three payments, Stephen received a worthless “digital bond certificate.” The scam continued until the fraudsters pushed him to invest even more. At that point, alarm bells rang, and Stephen realised he had been scammed. Many victims, like Stephen, don’t get their money back. Thankfully, after the media highlighted Stephen’s case, he recovered his funds. However, many others remain trapped in the cycle of loss, unable to reclaim their money.
How Andrew White Nearly Lost His Retirement Savings
Andrew White, an RAF veteran, also fell victim to a high-value scam. He had sold his house in Wales to be closer to his family and was in the process of purchasing a new home. As the completion date approached, he received an email from his conveyancing firm with instructions on where to transfer the deposit. After transferring £240,000, White emailed the firm to confirm receipt of the funds. To his horror, the company responded that they had not received the money.
Fraudsters had hacked into the email exchanges between White and his solicitor, posing as the conveyancing firm and directing him to send the money to a bogus account. The Financial Ombudsman Service eventually ruled that White’s bank had not adequately questioned the multiple payments, leading to his refund. However, he reflects on how easily this situation could have ruined him financially. “The £240,000 scammed from us wasn’t for a shady get-rich-quick investment,” he says. “It was for a house where we planned to spend our retirement.”
A Growing Concern
White’s case exemplifies an authorised push payment (APP) scam, where fraudsters trick victims into sending them money. Common variations of this scam include fraudsters posing as solicitors, builders, or even official organisations like HM Revenue and Customs. In some instances, criminals posing as bank officials cold-call victims, instructing them to move their money to a “safe” account.
APP fraud has reached epidemic levels in the UK. In 2023, there were 252,626 reported cases of APP scams, resulting in nearly £341 million in losses. That’s almost 29 cases every hour. Although banks have implemented measures to combat fraud, the increasing number of cases highlights the need for stronger fraud prevention strategies and greater fraud awareness.
Changes to Fraud Reimbursement Rules
For years, a voluntary industry code has guided how banks handle fraud reimbursement. However, the banking industry’s approach has been criticised as inconsistent and unfair to victims. In response, the Payment Systems Regulator (PSR) introduced new mandatory rules that will take effect on 7 October this year. These rules require banks to reimburse fraud victims who have been tricked into transferring money, with a maximum refund of £415,000.
However, after intense lobbying from banks and politicians, the regulator scaled back its original plans, proposing an £85,000 cap. This decision has drawn criticism, particularly because many investment scams involve sums well above £85,000. The PSR acknowledged that in 2023, 411 cases involved losses greater than £85,000, and 18 victims lost more than £415,000. These numbers highlight how the reduced cap could leave many victims without full reimbursement.
At present, fraud victims face what many campaigners call a “reimbursement lottery,” depending on which bank they use. According to recent data, Nationwide reimbursed 96% of APP fraud cases reported last year, while TSB refunded 95%. However, Monzo, an app-based bank, refunded only 9% of fraud victims and gave partial refunds in just 6% of cases. Monzo attributes this to a disproportionate number of purchase scams originating from social media.
Protecting Yourself from Investment Fraud
Fraud prevention starts with awareness. Here are some measures you can take to protect yourself from falling victim to investment fraud:
- Be cautious of unsolicited investment offers: Legitimate financial institutions won’t cold-call you or pressure you into investing. Always do your research before investing.
- Check the Financial Services Register: Ensure that the company is registered and regulated by the Financial Conduct Authority (FCA).
- Verify the details: Don’t rely solely on email correspondence. Double-check any investment opportunity by calling the company directly using a verified number.
- Be wary of high returns: If an investment offers unusually high returns with little risk, it’s likely too good to be true.
- Guard your email and personal information: Fraudsters often target victims by hacking email accounts. Always use strong passwords and two-factor authentication.
Media pressure led to both victims receiving refunds, as they initiated the transfers and likely wouldn’t have been reimbursed otherwise. In such cases, the responsibility lies with individuals to perform thorough checks before transferring funds. To reduce the risk of falling victim to investment fraud, always remember that if a deal seems too good to be true, it probably is. Fraud prevention begins with scepticism and awareness, ensuring that you verify every detail and approach investment cautiously to protect yourself from fraud.
