WP Jamus Lim advocates equitable distribution for digital scam losses

Associate Professor Jamus Lim, Workers’ Party Member of Parliament for Sengkang GRC, has advocated for a comprehensive approach to address the growing crisis of confidence in Singapore’s digital systems.

He reiterated the importance of regulating actual loss absorption by financial institutions and communication companies, proposing an upper limit to consumer liability when losses are, unfortunately, realized.

In a recent Facebook post, he attached a news article screenshot, which reported that at least 219 customers of DBS have fallen victim to SMS phishing scams, suffering a combined loss of about S$446,000 (US$335,000) in the first two weeks of the year.

He expanded the discussion on the current state of online fraud and scams following last week’s debate on a motion improving online security.

He pointed out the weakness of the Shared Responsibility Framework (SRF) in addressing victims’ losses.

The framework, announced by the Monetary Authority of Singapore (MAS) and the Infocomm Media Development Authority (IMDA) on 25 October last year, proposes how losses from phishing scams and similar frauds should be apportioned between consumers, banks, and telecommunication companies (telcos).

SRF absolves financial institutions and telco providers from losses, says Jamus Lim

In his post, Assoc Prof Lim highlighted that the SRF currently absolves financial institutions and telecommunications providers from losses, as long as they have taken precautions to prevent scams.

But he noted that as anyone who deals with strategy knows, attacks always go for the weakest link in the chain.

“These are often individuals. To make matters worse, these are also the ones least prepared to guard against sophisticated fraudsters, compared to institutions.”

Moreover, the SRF only sets guidelines for responsibilities, rather than outcomes.

He acknowledged that, despite meticulous cyber hygiene practices, accidents can still occur, creating a scenario where customers bear the majority of losses, especially if corporations can demonstrate the implementation of the latest security features.

“In practice, what this almost certainly means is that customers will bear the brunt of losses, as long as corporations can show that they’ve implemented the latest security features and tools. ”

“Once losses occur, cost sharing is almost never fair,” added Assoc Prof Lim.

Advocates for capped consumer loss of S$500 in online scams

To rectify this imbalance and ensure a fairer distribution of losses, Assoc Prof Jamus Lim proposed a more equitable sharing model, suggesting that telecommunications companies and banks should absorb a portion of the losses.

“And importantly, by “share” I mean proportional to their respective abilities to bear them.”

He suggested that this should be just the first step, leading to longer-term changes in the financial ecosystem.

He introduced the idea of an insurance (and reinsurance) market as a potential solution, to limit liability and cap customers’ exposure to a predefined amount, such as S$100 or S$500.

This proposal, presented by Assoc Prof Lim during his recent debate, suggests that to restore trust, regulators should mandate actual loss absorption by financial institutions and communications companies.

However, there is disagreement on this suggestion, as highlighted by a member of the public penned in the ST Forum who expressed concerns that such measures might embolden scammers, making them less hesitant about victimizing individuals.

The commenter argued that if consumers know the maximum amount they could lose in a scam is a mere $100, they might become less vigilant in their digital transactions.

Assoc Prof Lim responded to this criticism in a Facebook post, emphasizing the inherent nature of insurance and introducing the concept of moral hazard, where individuals might act more recklessly if the cost of potential accidents is covered.

He acknowledged the validity of concerns about potential carelessness with smaller amounts but argued that even a S$500 cap would make most individuals cautious.

“I don’t know about you, but if I might lose 500 bucks, I’ll do what I can to avoid it. Would I be more careful with a larger amount? Sure. But $500 is enough to make most folks very careful. ”

Regarding the possibility of emboldening criminals, Assoc Prof Lim questioned why likely victims would significantly change their behaviour, emphasizing that nobody desires to be scammed, even for a small amount.

He also addressed concerns about scammers posing as unwitting customers, pointing out that insurance fraud is a known concept and part of the evolving ecosystem.

“And if you’re saying that crooked scammers could try to game the system by posing as unwitting customers, well, there’s such a thing as insurance fraud. Criminals may not care about this, but that’s where the ecosystem evolution argument comes in.”

Assoc Prof Lim believed that companies involved in fraudulent purchases would be more cautious, fearing the potential loss of electronic payment privileges.

Encouraging banks to intensify scrutiny and safeguards

He argued that the proposed system would prompt increased efforts in policing phishing and fraud, as institutions could no longer shift the majority of losses onto consumers.

Banks, according to Assoc Prof Lim, would adopt more stringent measures, scrutinizing transfer counterparties and monitoring their own “mule” accounts.

He acknowledged that implementing such a system might lead to a slight increase in costs for everyone but argued that managing these costs at a national level could be more feasible.

Assoc Prof Lim cited existing ecosystems for deposit insurance and credit card fraud in various parts of the world, including the UK, which has proposed even more aggressive measures to limit consumer liability for scams.

“When we can harness not just public sector policing efforts, but also private sector incentives, the system becomes stronger and safer for all. ”

“But it begins with a first step, of ensuring that losses, not just responsibility, is shared, ” Assoc Prof Jamus Lim concluded.