Joel made contact with the global asset management company. A person purporting to be from the company got in touch. He was, in fact, a scammer. In December 2022, Joel made seven payments via internet banking totalling $330,000 to an account at another bank connected to this so-called investment. A month later, Joel tried to call the asset management company, but the number was disconnected. Joel realised he had been scammed.

Joel complained that the Financial Markets Authority made the bank – along with all other banks – aware of this type of scam three days after he made the payments. He said the bank should have checked for any customers who had sent money to the account used by the scam company (thereby discovering that he had been scammed), and it should also have tried to recover his money immediately from the recipient bank. He also complained that the bank should have noticed that the transactions were unusual. In addition, Joel complained that the recipient bank did not do everything in its power to maintain security and stop the illegal use of the account. Finally, Joel complained that the bank was slow to advise him of the outcome of its fraud investigation and failed to give him information about its internal complaint-handling process.    

Our investigation

We examined Joel’s interactions with the bank just before he made the internet payments to assess whether there were any warning signs, or “red flags”, suggesting he was being scammed. Banks are required to make inquiries before processing a transaction if they suspect, or ought to suspect, a customer is being scammed. In the absence of such warning signs, however, a bank is not obliged to question the transaction. When Joel contacted the bank about breaking his term deposit, he mentioned that he had to withdraw the money to “help out a family member with their living arrangements”. He also mentioned that “things have changed in our family environment and I need to withdraw [the money immediately]”.

Such statements do not suggest a scam. It is not at all uncommon for customers to break term deposits for this and similar reasons. The bank therefore had no reason to be suspicious. Furthermore, the transactions were made online via internet banking, and the bank’s fraud detection system did not detect them as suspicious. Joel said the number and cumulative size of the transactions were unusual for him. However, banks were not obliged to monitor a customer’s use of funds at the time. In addition, the transactions were made using Joel’s internet banking log-in details, and banks were not required at the time (although they are now) to check that account names and numbers match.  

As for Joel’s complaint that the bank should have acted promptly after the warning from the Financial Markets Authority, the bank was not obliged to look back for any payments by its customers to the fraudulent company. 

As for Joel’s complaint about the recipient bank, our rules did not permit us to consider complaints about recipient banks. We reviewed the steps the bank took to recover the money and were satisfied it took reasonable and prompt steps to do so. However, we considered the bank failed to meet its obligations under the Code of Banking Practice to communicate with customers clearly and effectively. In our view, the bank failed to do this. After the bank updated Joel on the progress of its fraud investigation on 25 January, he did not hear from it again until 17 May, and that was in response to his own follow-up email. The bank did not update Joel when it followed up with the recipient bank and was told there were no funds to recover. Nor did it advise him when it closed his file. In addition, he received no response to a question about a belated update from the bank on 17 May.  

Outcome

The bank agreed to pay Joel $2,000 for its inadequate communication, an offer he accepted, although he did not settle his core complaint, that the bank should have prevented his $330,000 loss, thereby leaving open the option to pursue this aspect of his complaint through the courts.