The committee also recommended the Government urge the New Zealand Bankers’ Association to update its Code of Banking Practice to “offer further measures that help protect consumers from scams and fraudulent activity”.
A voluntary compensation or reimbursement scheme should also be investigated for New Zealand, the committee said.
The committee said the briefing followed high-profile digital and online scams early last year that lost New Zealanders millions of dollars.
“We are concerned about the effects scams are having on victims’ lives and were keen to understand how banking processes could better protect consumers from scams.”
Banking Ombudsman Nicola Sladden told the committee she had seen an increase in complaints about scams, year after year.
In 2015, about 30 scam-related complaints were received in each quarter.
In the second quarter of last year, the number of complaints rose to 157.
“Not only is the volume of complaints about scams rising, but scams are also becoming increasingly more sophisticated and are involving larger sums of money.”
The Banking Ombudsman said it was timely to review what protections New Zealand had in place to protect consumers against scams.
Computer Emergency Response Team New Zealand (Cert NZ) said the direct financial loss from cyber incidents had increased 66 per cent in the first quarter of this year compared to the fourth quarter of 2022.
The Banking Ombudsman told the committee that banks in New Zealand had an obligation to “act with reasonable care and skill”.
Scams generally fell within two categories: authorised scams, which involve people making payments to bank accounts they believe are legitimate - such as romance scams, and unauthorised scams - where a payment is made from a person’s account without their knowledge or agreement.
In New Zealand banks generally do not reimburse consumers for authorised scams. However, banks will “typically have to reimburse consumers” for unauthorised scams.
The report said that since 2018, the United Kingdom has used “open banking processes” to strengthen protections for consumers.
“Open banking enables individuals and businesses to securely share their banking data with trusted third parties, who are then able to provide tailored applications and services to consumers.”
Compared to New Zealand, the United Kingdom has more comprehensive scam protections, including a confirmation of payee service.
“This is done by banks checking the name provided by the person making a payment against the actual name associated with the account they are paying money into,” the report said.
“If the names do not match, or the information is not available for the recipient account, a notification is sent to the consumer. This allows the consumer to make a more informed decision about whether to proceed with the payment.”
The United Kingdom also has a voluntary scheme setting minimum standards for consumer protections against authorised payment scams, referred to as the Contingent Reimbursement Model Code.
“If customers have been the victim of an authorised payment scam, they are eligible for a reimbursement from their bank, unless the bank can establish that one of the exceptions set out under the code applies — for example, that a consumer has ignored either a formal warning from the bank or a negative confirmation of payee notification.”
The committee said Australia’s regulatory framework for protection against scams was similar to New Zealand, and only enabled protection for victims of unauthorised payment scams.
The committee said in setting out its recommendations that banks’ processes in New Zealand “should be strengthened to protect consumers against scams”.
“We note that open banking will be introduced in New Zealand, and we expect that this will have a positive impact on consumer protections in similar ways to the UK experience.”
Banking Ombudsman Nicola Sladden said she welcomed the report’s recommendations.
“Stopping scams and the related harm is of utmost importance. Year on year we are seeing an increase in scam volumes. The sums involved have grown, as has the sophistication of the scams.”
She supported the “urgent adoption” of a system similar to the United Kingdom’s Confirmation of Payee scheme.
“Many New Zealanders incorrectly assume their bank will warn them if they send money to the wrong person. However, banks cannot check whether a recipient’s name and account number match. This results in lost funds through fraud and mistaken payments.”
She also welcomed further research into a voluntary reimbursement scheme for New Zealand.
“The reimbursement framework should give customers and banks alike an incentive to be vigilant to scams, and to respond effectively and promptly when they do happen.”
Sam Sherwood is a Christchurch-based reporter who covers crime. He is a senior journalist who joined the Herald in 2022, and has worked as a journalist for 10 years.
