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Fear of fraud hampers UK online banking

FSA survey

SANS - Survey on application security programs

The UK's Financial Services Authority (FSA) has warned banks that they must do more to help consumers to deal with online banking fraud, warning that consumer confidence in internet banking is currently very fragile.

According to the regulator’s Financial Risk Outlook 2006, to be published on Wednesday, half of active internet users are 'extremely' or 'very' concerned about the potential fraud risk of making an online transaction.

A survey carried out for the FSA by NMG Financial Services Consulting/IPSOS, shows that consumers who conduct their banking online are taking steps to protect themselves against fraud, by installing security software on their PC, but over a quarter do not know when they last updated their software or update it infrequently.

Five per cent of online bankers have no security software installed on their PC at all. The most common reasons cited include that it is too expensive, that they don't need it or they don't understand what it is.

Many banks' terms and conditions reflect the voluntary Banking Code. The current edition, published March 2005, tells users to use up-to-date anti-virus and spyware software and a personal firewall.

But the FSA found that nearly all users (95 per cent) surveyed believe that at least some security responsibility should lie with the bank while 45 per cent believe banks should take sole responsibility.

According to APACS, the UK payment association, fraud losses through internet banking were £14.5m in the six months to June 2005. Although this is relatively low, losses have more than trebled since the same period in 2004 (£4m). The FSA's research found that if banks were to tackle these losses by shifting the liability fully towards the consumer, more than three quarters (77 per cent) of users say they would abandon internet banking.

“Most consumers recognise they have some responsibility for security but they are not necessarily following this obligation through,” said Philip Robinson, Financial Crime Sector Leader at the FSA. “To tackle the losses associated with fraud, banks should continue to drive security and this must include educating consumers on the importance of protecting themselves.”

"We recognise that many banks are already taking steps to engage consumers. Initiatives like the 'Get Safe Online' campaign between the Government and the private sector show consumer education is beginning to happen. But banks need to look carefully at consumer attitudes and whether their initiatives are effective in maintaining confidence," he added.

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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