Failure to prevent fraud offence to be introduced
21 August 2023
The Government “is creating a new failure to prevent fraud offence to hold organisations to account if they profit from fraud committed by their employees” (The Policy Paper, updated on 20 June 2023).
That is particularly interesting, in light of the Supreme Court decision in Philipp v Barclays Bank UK PLC [2023] UKSC 25 handed down less than a month later, on 12 July 2023.
In Philipp, the Supreme Court held that Barclays did not have a duty (sometimes called a Quincecare duty) not to carry out Mrs Philipp’s payment instructions in circumstances where she alleged that the bank had reasonable grounds for believing that she was being defrauded.
There was no suggestion in that case that the bank had profited from the fraud but the Supreme Court looked at the policy considerations as to whether the victim or the bank should bear the loss.
The press summary from the Supreme Court explains that: “The type of fraud which occurred in this case is known as “authorised push payment” (APP) fraud – so called because the victim is induced by fraudulent means to authorise their bank to send a payment to a bank account controlled by the fraudster. Whether victims of such frauds should be left to bear the loss themselves or whether banks which have made or received the payments on behalf of customers should be required to reimburse victims of such crimes is a question of social policy for regulators, government and ultimately for Parliament to consider”.
The press summary goes on to say that: “It is in fact now the subject of legislation. The Financial Services and Markets Act 2023, which received Royal Assent on 29 June 2023, provides (in section 72) for a mandatory reimbursement scheme (although this scheme does not extend to international payments and therefore would not have applied to this case)”.
At paragraph 21 of the decision, Lord Leggatt discusses other limitations on this scheme, but went on to say: “It should go without saying that it is not the role of courts to make rules of this kind”.
It will be interesting to see if the Government and parliament now go on to make any more rules of this kind, to expand the mandatory reimbursement scheme.
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Andrew Kinnison
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2023.