UK Government to Water Down Fraud Proposals for Tech Groups

Ministers expect to move to voluntary agreements rather than making companies liable for compensationUK ministers are poised to water down proposals to force tech companies to pay compensation to victims of online financial scams, after concerns at the Treasury and the Department for Science, Innovation and Technology about their impact on the sector.

As early as this Wednesday, the government will announce a national fraud strategy. The strategy is intended to create a coordinated approach between government, law enforcement, and the private sector.

Ministers will now announce a voluntary deal, in which the tech industry pledges to be more proactive about combating online fraud and not make companies responsible for compensation.

Rishi Sunak, the Prime Minister of India, said in November last year that his government would “shortly” publish its Fraud Strategy. People with knowledge of the matter claim that the delay was due to the concerns within the government about earlier proposals.

The Online Safety Bill, which is currently moving through the House of Lords, will impose on large platforms a “duty of caring” to protect their users from fraud or other negative content.

Ministers proposed to go even further, and have the tech and telecommunications sector be responsible for compensating victims of fraudulent content. This would remove the “safe harbor” principle that allows platforms to not be liable for the content they post on their site until they become aware of it.

There were concerns that this could lead to a flood of lawsuits against tech companies over the content they host.

Officials in the newly formed Science Department — now responsible for regulating tech firms — have expressed concerns about the financial impact on tech companies.

Unofficially, one official stated that it is important to strike a balance between safety and pro-growth policies. He also said that online fraud can be tackled without causing financial harm to the sector.

Treasury privately expressed concerns that the proposals may leave the industry open to a large number of lawsuits based on content.

One government official said that monitoring all content in order to determine if it is fraudulent would be “extremely burdensome”. Official added: “It will move the UK further away from international competitors, and harm our international technology competitiveness.”

According to people familiar with the negotiations, as part of the launch strategy, tech companies will make promises about actions they will take to reduce fraud. They would also make changes to their platforms’ design to make it easier for users to identify and report fraud.

Machine learning is already being used to detect fraud by scanning images, tracking IP addresses and blocking them.

Some large tech firms, like Meta and Microsoft have already committed themselves to a “revised onboarding advertising process”, which ensures that UK financial service companies who want to advertise with the company have been approved by Financial Conduct Authority (which regulates financial services). Next week, more tech companies will sign up.

The lenders are currently part of a voluntary arrangement to increase the amount of money refunded to victims who have been the victim of fraud involving authorised push payments, but the rates vary greatly. Since 2019, One, TSB has promised to reimburse any of its 5mn+ customers who are victims of online fraud.

UK Finance, a trade association for financial services, has called on the tech industry take more responsibility for online fraud. “The majority [of APP] [authorised push payment] fraudulent activity originates from other sectors, especially online platforms. This is why they need to take greater action in order to stop criminals stealing people’s cash.”

The Treasury declined comment. The Home Office stated that the government is “absolutely” committed to fighting fraud.

The Fraud Strategy will also allocate resources to police forces in order to combat fraud. It will also emphasize the need for the public to be empowered to identify scams and will detail how the government intends to spend the £400mn over three years it has committed to spending to help tackle the problem.