Ombudsman upholds Virgin Money customer’s complaint

Virgin Money looked into Mr M’s case and tried to get his money back from the receiving bank account, without success. The money had been taken out of the receiving account by the fake clone investment company and could not be traced. Virgin Money denied being responsible for Mr M’s losses.

Virgin Money claimed that on the two occasions Mr M had transferred funds, they carried out due diligence checks, designed to prevent fraud, including:

• Checking that Mr M was not under any pressure from a third party to transfer the large sums of money;
• Checking that Mr M had researched the company and product he was investing in and was happy to proceed.

These checks were designed to ensure that Mr M knew what he was doing, rather than verifying the integrity of the receiving bank account details. Following Virgin Money’s denial of blame, Mr M took his complaint to the Financial Ombudsman Service (FOS), a Government-backed body that deals with complaints between financial institutions and their customers.

A FOS investigation concluded that neither of the payments made by Mr M raised any ‘red flags’ with Virgin Money’s fraud prevention system. Virgin said that Mr M had made a large payment in recent years, so his behaviour was not unusual. However, according to the FOS investigators, the second payment, which was made only 3 days after the first, should have raised more concern, prompting further questions from Virgin Money.

Had further questions been asked, however, the FOS believed Mr M would give convincing answers that he knew what he was investing in, as he was an existing customer, and had researched the bond. Virgin Money thought the interest rate on the bond didn’t seem ‘too good to be true’ – a very high or unrealistic rate of return is often a warning sign that an investment might be a scam.

The initial FOS investigation, therefore, concluded that Virgin Money did everything that it could to ensure that fraud was unlikely. The scam was so convincing, it was understandable that it had not been discovered. And although there was a warning on the City watchdog Financial Conduct Authority’s website about a cloned firm scam for the company in question, staff at Virgin Money would not have been expected to know about it.

Mr M disagreed with the outcome of the FOS investigation and appealed against it. He claimed that Virgin Money should have done more to keep him safe by giving him information about scams, explaining the warning signs and helping him to check that the receiving bank’s details were correct.

Mr M also claimed that large bank transfers from his account were unusual and infrequent and the previous large payment he made had been a cheque and not to any sort of investment, again a ‘red flag’.

Authorised Push Payment (APP) Fraud has become much more common. Unsuspecting individuals are persuaded to transfer money into a bank account, the money is then quickly moved into another account held by the scammers and effectively disappears. As the payments are authorised by the scam victim, they have traditionally been held liable for their own losses.

However, more recent decisions have been made against banks, in favour of the scam victim, including impersonation scams. Codes of conduct exist to protect banking customers – and due diligence is a key part of this.

Financial institutions have a duty to:

• Monitor accounts and transactions for risks like fraud, scams and money laundering;
• Have systems in place to identify, delay or block unusual transactions that might suggest fraud.

Mr M’s claim was ultimately upheld. On review, the Ombudsman concluded that Virgin Money should have done more to prevent the fraud. Assuming that Mr M was an experienced investor was not a reason to carry out less rigorous checks around the two transactions he made.

They should have obtained more detail about the initial research Mr M had carried out into the investment. And they should have asked more about how he had been initially contacted, educating him about common scam techniques and how to check reputable sources, like the FCA website, for evidence of scams. The very impersonation scam that Mr M was a victim of, was listed on the FCA’s website, including the contact details the scammers used.

The Ombudsman went on to say that Mr M should not bear any responsibility for his loss, given how sophisticated the impersonation scam was and that he should be refunded £100,000, plus interest.

Commenting on clone and impersonation scams, Head of Professional Negligence at TLW, Sarah Spruce, said:

“Our specialist team are seeing increasingly elaborate and convincing scams. The banks deal with these day to day, and are in the best position to know what to look for and in turn protect their customers. Whilst it may initially feel embarrassing to think you have been scammed, there are remedies available and we would urge anyone who has lost money in this way to get in touch. We can advise you about seeking a refund and help you through the process of making a claim for compensation.”