Guaranteed 10% return on investment – or more? If it sounds too good to be true, it probably is!

The Financial Ombudsman Service has provided case studies highlighting how these scams work and the impact on their victims.

Joyce was the victim of one such investment scam; after searching for investment opportunities online and filling out a web form, she was contacted by an unregulated broker offering dividends of over 10% on her first £20,000 investment. Over the next few months, the same broker contacted her with further ‘opportunities’ for which she transferred three more sums totalling £80,000. Joyce paid these sums directly from her bank to the fraudster’s account.

Joyce’s bank contacted her about each transaction, but she confirmed that they were legitimate (which she believed they were) and were cleared. This is known as Authorised Push Payment (APP) fraud, in which a victim is encouraged to make bank transactions for what they believe is a legitimate purpose, such as to pay into an investment.

After the broker stopped responding, Joyce realised she had been scammed and complained to her bank, claiming that it should have known it was a scam and stopped the transactions earlier. The bank told her that the losses were not their responsibility and so were not prepared to pay a refund, so she complained to FOS to carry out an independent investigation.

Following an investigation, the Ombudsman found that, although Joyce’s bank had contacted her to confirm the transactions as they occurred, it had not asked sufficient questions nor done enough due diligence to prevent the fraud in the first place and that if it had, the scam would not have been successful.

As a result of the Ombudsman’s investigation, Joyce was refunded the entire £100,000 plus 8% interest in compensation.

Unfortunately, Joyce’s situation is far from isolated, and cases of investment fraud are increasing resulting in victims losing substantial amounts of money to scammers.

Typically, banks are unlikely to accept responsibility for the loss of funds this way, with the responsibility often being pushed back to the victim. However, FOS is reporting more decisions where it has found that banks could have taken additional steps to check that customers are not vulnerable to fraud, such as in Joyce’s case.

Banks have procedures in place to safeguard consumers by:

• Regularly monitoring accounts and transactions for signs of fraud, scams, and money laundering
• Implementing systems to identify, delay and/or block suspicious transactions that may indicate fraud
• Following the Financial Conduct Authority (FCA) guidance on how to protect consumers from investment fraud

In the 2021/22 report, FOS upheld and secured compensation for around 75% of authorised payment fraud complaints against banks, including the increasing number of investment fraud cases.

Some recent investment fraud ombudsman success stories include:

• HSBC customers receive £9,000 refund plus 8% interest following a ‘high return’ online investment scam;
• Mr W was awarded a £91,000 refund plus compensation from Lloyds Bank after he fell victim to a binary options trading scam;
• The Ombudsman successfully upheld a Virgin Money customer’s complaint that the bank did not do enough to protect him from losing £100,000 to a sophisticated investment scam.

Commenting on the increase of investment fraud cases taken to the Financial Ombudsman Service, Head of Professional Negligence at TLW, Sarah Spruce said:

“The increase in these sophisticated investment scams is startling, but it is important for consumers to know that all is not lost. Banks have a duty to detect and prevent fraud and, where they have not conducted due diligence or sufficient checks, FOS can investigate and give an independent verdict.

More and more we are seeing FOS upholding customer complaints against banks, such as Joyce’s, and securing considerable compensation for victims following investment scams. If you think that you or a loved one has lost out financially as a result of an investment scam and the banks didn’t do enough, then get in touch with a member of the TLW APP Fraud team.”