Alvin Tan advocates for goodwill payments over mandatory scam victim reimbursements

SINGAPORE:  In his parliamentary address on Tuesday (8 Nov), Minister of State for Trade and Industry Alvin Tan highlighted that banks and financial institutions have the option to provide goodwill payments to customers affected by scams.

He emphasized that the regulatory body has encouraged banks to be more accommodating in these payments.

These discretionary goodwill payment frameworks for scam victims are meant to complement the proposed Shared Responsibility Framework (SRF). The SRF aims to reinforce the direct accountability of financial institutions and telecommunication companies to consumers in cases where they have breached their prescribed duties.

Mr Tan’s remark was in response to Parliamentary questions filed by Ms Sylvia Lim, Workers’ Party Member of Parliament for Aljunied GRC and PAP MP Dr Tan Wu Meng.

The SRF, jointly initiated by the Monetary Authority of Singapore (MAS) and the Infocomm Media Development Authority (IMDA) on 25 October, aims to tackle losses resulting from scams.

It outlines a structured mechanism, known as the “waterfall approach,” for distributing responsibility among financial institutions (FI), telecommunication companies (telcos), and consumers.

Ms Sylvia Lim sought clarification from the MOS to ascertain the current level of compliance among banks in adhering to the four obligations outlined in the Shared Responsibility Framework.

Additionally, she inquired about the average and median losses suffered by victims of phishing scams covered under the same framework in the last two years.

Shared Responsibility Framework shifts accountability to FIs and Telcos, says Alvin Tan

In response, Mr Tan emphasized that the SRF places FIs and Telcos at the forefront of responsibility in preventing scams, with a waterfall approach for compensating victims. If the FI fails to fulfil any of its four anti-scam duties, it will fully compensate the victim, regardless of Telco’s actions or the victim’s precautions.

Similarly, if the FI fulfills its duties but the Telco does not, then the Telco is expected to bear full responsibility for the loss. Only when both the FI and Telco fulfill their duties will the customer be responsible for the loss.

Mr Tan also mentioned that the SRF is part of a broader set of measures being implemented to strengthen the security of digital banking in Singapore.

15,000 phishing scam cases from 2021 to mid-2023, with an average loss of $3,900 per case

Based on data collected by the Police, MAS estimates there were about 15,000 phishing scam cases from 2021 to mid-2023, with an average loss per case of about $3,900.

He highlighted the importance of reducing the risk of phishing scams, citing the continuous rise in the number of phishing scams in the first half of this year compared to the previous period, but has declined as a proportion of total scam cases from 17% to 13%. The average loss per phishing scam has also declined by 20% over the same period.

Additionally, Mr Tan mentioned that the SRF and the banks’ goodwill payment frameworks work in tandem to provide assistance to scam victims.

“SRF is not the only means through which scam victims can seek assistance,” he said.

“Depending on the circumstances of each scam case, the sophistication of the scam typology, and the consumer’s financial situation, banks have covered part or all of the losses incurred by scam victims. MAS has leaned on the banks to be even more accommodative in applying their goodwill payment frameworks.”

Concerns raised over the perceived “free pass” granted to banks under the “waterfall” approach

In her supplementary questions, Ms Lim pointed out the significant disparity between the “waterfall” approach and the approach adopted in the UK, where a default requirement for banks to compensate customers is anticipated unless the customer was fraudulent or grossly negligent.

Ms Lim questioned whether the waterfall approach effectively grants the banks a “free pass”  if they manage to fulfil the four prescribed duties outlined in the paper, thus absolving them of any financial losses, as suggested by the case studies within the document.

In response to Ms Lim’s questions, Mr Alvin Tan highlighted the differences between the UK’s approach and Singapore’s approach, emphasizing that the recent moves by the UK and Australia are not globally standard, and various jurisdictions may adopt different strategies to tackle scams.

He explained that Singapore’s approach primarily focuses on scams involving authorized transactions, such as love scams, investment scams, and job scams, where the customer authorizes the transactions.

The framework is designed to encourage vigilance and personal responsibility among customers, as well as to strengthen public education efforts.

Mr Tan emphasized the need to guard against the moral hazard risk and ensure fairness for the wider group of customers who exercise care, preventing them from bearing the cost of compensating for scam losses from authorized transactions.

“We also want to guard against the moral hazard risk, in terms of consumers letting their guard down, and also potentially working cahoots with scammers to defraud the banks.”

Mr Alvin Tan discussed the distinction between unauthorized and authorized transactions in the context of the SRF, and underscored the responsibility of financial institutions at the top of the waterfall and the telecommunications companies (TELCOs) at the second layer to protect consumers.

The SRF primarily addresses phishing scams where customers unwittingly reveal their bank credentials, leading to unauthorized withdrawals.

He emphasised the need for a balanced approach in considering goodwill payment frameworks, taking into account factors such as the sophistication of the scam, the consumer’s financial situation, and the potential for financial hardship.

MOS Tan emphasizes discretionary goodwill payments

Ms Lim sought clarification on whether, under the SRF, banks could potentially shift the liability down the waterfall if they fulfill the four obligations but are negligent in other ways.

In response, Mr Tan said it depends on the case-by-case basis.

“If it’s unauthorized transactions and if it goes through the waterfall approach, for example, if the FI has fulfilled their duties, the telcos have fulfilled their duties, and in this case the customers themselves have fulfilled their duties, then it is up to the banks to see whether they can implement, in fact they will and have been implement a goodwill payment frameworks.”

He emphasized the importance of fairness to financial institutions, telcos, and consumers, indicating that the operational goodwill payment framework would account for individual financial hardships when considering compensation for consumers.

Addressing concerns raised by Ms Lim and Dr Tan regarding the challenges faced by customers when requesting physical tokens from local banks, Mr Tan pledged to work with both the Monetary Authority of Singapore (MAS) and the banks to streamline the process.

He emphasized the importance of ensuring a smoother experience for customers requiring physical tokens, especially for those who may not be as familiar with digital tokens or lack confidence in using them.

The consultation paper on the Shared Responsibility Framework (SRF) will remain open for feedback until December 20. Mr Tan confirmed that all feedback received will be thoroughly reviewed, and the MAS and IMDA aim to put the framework into operation early next year.

Mr Tan also acknowledged that the exclusion of malware scams from the initial version of the SRF was due to the rapidly evolving nature of these scams.

However, subsequent updates to the framework will incorporate these new scam variants. The scope of the SRF will expand to include other ecosystem players in the future.

Rejection of mandatory reimbursement for malware victims

Ms Lim previously called for banks to take full responsibility for reimbursing scam victims in her Adjournment motion in September, spotlighting the rise in malware scams.

She highlighted the vulnerabilities in current two-factor authentication systems and argued for the reinstatement of physical tokens to improve security.

Ms Lim criticized the practice of banks offering inadequate goodwill payments tied to non-disclosure agreements, suggesting it creates a power imbalance.

In response, Mr Tan opposed mandatory full reimbursements, stressing the importance of personal responsibility and vigilance among consumers.

He outlined MAS’s commitment to enhancing digital security and consumer protection, suggesting that those who practice good cyber hygiene should not bear losses. Tan encouraged the use of mediation and legal avenues for dissatisfied scam victims.