The Minister of Commerce and Consumer Affairs has published an open letter to the New Zealand banking industry requesting immediate and concerted action to better protect customers from proliferating scams and online fraud. This article considers: the Minister’s specific requests (for a confirmation of payee system, a Code of Banking Practice update, and a voluntary victim reimbursement scheme); the banking industry’s initial response; and four concrete steps we think the New Zealand Government should take to combat scams and online fraud.
Who should read this and why?
This alert should interest business leaders, lawyers, regulatory affairs professionals, law enforcement agencies, cybersecurity professionals, financial institutions, telecommunications providers, digital communications platforms and other individuals concerned about safeguarding against scams and online fraud [1].
What’s happened?
Minister’s letter
The Minister of Commerce and Consumer Affairs, Hon. Andrew Bayly, has published an open letter to the New Zealand banking industry requesting immediate and concerted action to better protect customers from scams and online fraud.
The Minister’s letter starts by highlighting the continuing proliferation of these activities (which cost New Zealanders nearly $200m in 2023), and the importance of restoring customer trust in the financial services sector. It then acknowledges previous banking industry initiatives to combat scams and online fraud, but stresses the need for further action including:
- the introduction of a confirmation of payee system to check that bank account names and numbers match before allowing electronic transactions to go through by the end of 2024;
- an investigation into the merits of introducing a voluntary compensation scheme where banks compensate customers for authorised payment scam losses unless they have been grossly negligent, with an update provided to the Minister by September 2024;
- an update of the industry’s voluntary Code of Banking Practice (Code) to include better customer protections within the year, or the Minister will consider options for a regulated mandatory code; and
- the development of other initiatives and systems to protect consumers from online scams and fraud, and the presentation of related proposals to Government.
New Zealand banking industry response
The New Zealand banking industry has responded swiftly and confirmed that:
- a confirmation of payee system will be operational this year;
- the banks will investigate a voluntary reimbursement scheme and their findings could be incorporated into the Code; and
- the industry is implementing a suite of other measures to further protect customers from fraud, including:
- running awareness campaigns to educate consumers about common fraud schemes and how to protect themselves online;
- removing hyperlinks from texts to customers;
- supporting the establishment of a co-ordinated multi-sector Anti-Scam Centre, through which the banks are already sharing additional information to help identify and reduce fraudulent payments to mule accounts; and
- meeting fortnightly (at chief executive level) to talk about fighting scams and alternative strategies for addressing them.
Our view?
As the Minister’s letter notes, the responsibility for tackling scams and online fraud sits with everyone - Government, industry and consumers. In our view, there are various things the Government could usefully do at an early stage to assist these efforts, including:
Appointing a lead Minister and government agency to coordinate efforts going forward
At present, the Governmental responsibility for tackling fraud and online scams sits across several Ministerial portfolios, including Commerce and Consumer Affairs, Media and Communications, Justice and Police. These Ministers preside over several government agencies that play significant roles in combating scams and online fraud by implementing laws, providing guidance, and investigating fraudulent activities. These agencies include the Commerce Commission, the Department of Internal Affairs, the Financial Markets Authority, the Ministry of Business, Innovation and Employment (MBIE), Netsafe and the Police.
Appointing a lead Minister and government department would ensure streamlined coordination, clear accountability, focused expertise, better resource allocation, consistent policy development, improved public confidence, and enhanced collaboration between interested parties. In our view, the Commerce and Consumer Affairs Minister and MBIE are likely the most appropriate leads in the near term.
Supporting the evolution of the banking industry’s national Anti-Scam Centre
The New Zealand Banking Association has requested government support for a coordinated New Zealand Anti-Scam Centre. In the NZBA’s view, the effectiveness of any Anti-Scam Centre will depend on operational support from the police and other relevant agencies and require the removal of regulatory barriers.
In July 2023, Australia launched its National Anti-Scam Centre (NASC), which is a government taskforce guided by an industry advisory board representing the finance, digital platforms and telecommunications sectors, as well as consumer advocates, victim support services and others with relevant expertise. NASC works to disrupt scammers, raise consumer awareness, and assist scam victims. NASC operates through a series of 'fusion cells', which are expert, time-limited taskforces designed to address specific and urgent problems. The first fusion cell has been launched and is focusing on combatting the growing problem of investment scams. The New Zealand Government should explore the merits of establishing a similar centre here.
Encouraging telecommunications providers and digital communications platforms to take further steps to combat fraud
Telecommunications providers and digital communications platforms serve as prime avenues for communication and interaction, making them breeding grounds for scams and online fraud. These companies’ vast user bases and extensive data insights offer unparalleled opportunities for detecting and mitigating fraudulent activities. By implementing robust security measures, user authentication protocols, and content moderation strategies, these companies can swiftly identify and remove fraudulent content, protecting users from financial and identity theft.
In the United Kingdom, the government and 12 leading technology companies (Amazon, eBay, Facebook, Google, Instagram, LinkedIn, Match Group, Microsoft, Snapchat, TikTok, X (Twitter) and YouTube) recently worked together to develop the Online Fraud Charter. Participating companies have agreed to take additional steps to block and remove fraudulent content from their sites and ensure new advertisers are verified, among other things. The New Zealand Government should consider how it could best encourage telecommunications providers and digital communications platforms to take further steps to reduce fraud and online scams here.
Working with regulators in other countries to identify best practice
The New Zealand Government should collaborate with regulators in other countries to tackle scams and online fraud because these crimes often transcend national borders and other countries’ responses (including Australia’s, Singapore’s and the UK’s) are more advanced than ours.
Perpetrators of scams and fraud can operate from anywhere in the world, exploiting loopholes in different jurisdictions and exploiting unsuspecting victims globally. By working with regulators in other countries, the New Zealand Government can share information, intelligence, and best practices to better understand evolving threats and coordinate efforts to combat them effectively. Collaborative initiatives can facilitate faster detection, investigation, and prosecution of cross-border fraud schemes, ultimately enhancing consumer protection and maintaining trust in the digital economy. Additionally, joint efforts can help in establishing consistent regulatory frameworks and standards, which are critical for ensuring effective compliance.
How we can help?
MinterEllisonRuddWatts is home to some of New Zealand’s leading banking, regulatory, consumer and litigation lawyers. We provide legal advice, risk assessments and compliance recommendations to help clients understand and navigate laws and regulations related to scams and online fraud. We conduct investigations, handle litigation, and negotiate contracts to protect clients from fraudulent activities. Additionally, we offer cybersecurity and data protection services, assist with government relations, and work with our clients to advocate for an appropriate framework to combat scams and online fraud effectively.
This article was co-authored by Tayla Robinson, a Solicitor in our Litigtion team.
Footnotes
1. Available here.
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