A Defence Force officer lost $250,000 in a banking scam after an ASB manager helped him transfer his life savings to the thieves. But the Banking Ombudsman has declined to award compensation. Photo / NZME

Watchdog clears bank after branch manager helps customer send $250k to scammers

Author: Lane Nichols,
Publish Date: Fri, 4 Oct 2024, 11:45am

The banking watchdog has refused to award compensation to a Defence Force officer who lost $250,000 to an investment scam, despite an ASB branch manager helping the victim transfer his life savings to thieves.

The man says he is “devastated” by the findings. Though the Banking Ombudsman found there were no “red flags” to put ASB on notice of the victim being defrauded, the man believes the bank failed in its duty of care and should be liable for his life-changing loss.

Had the scam been perpetuated overseas, the victim would likely have been in line for a full refund due to voluntary fraud reimbursement rules introduced by British banks.

Now our own banking sector has prepared a draft proposal to strengthen New Zealand’s customer protection and fraud reimbursement regime after being threatened with regulation by the Government. Announcements on what is proposed and when the changes will be rolled out are expected within weeks.

In the ASB case, the victim wanted to invest the proceeds of a house sale to fund his retirement.

He found a website for PT Wealth Management purportedly offering 90-day government-backed bonds with SBS bank. He was contacted by an investment adviser who convinced him to invest $250,000.

The victim checked the Financial Markets Authority (FMA) public scam warning page and ran a Trust Pilot search for poor customer reviews. Neither revealed any warning signs of a scam. An FMA warning about “imposter websites” was only issued a month after he had been fleeced.

He was sent payment instructions for an ANZ “holding account” and made the transfer in person at an Auckland ASB branch on April 13 last year.

Due to the size of the payment, a branch manager helped the victim complete the transfer. The man said this gave him confidence that anything suspicious would be picked up by the bank.

The payment occurred just a month after the Banking Ombudsman warned NZ banks about the rise in fake investment scams, recommending they provide additional customer warnings and update staff training.

The victim realised he’d been duped two months later but only $139 could be recovered. Police later identified multiple victims, with the man’s money likely siphoned to Vietnam.

He complained to ASB, arguing a supposed SBS bond investment going to an ANZ account should have triggered further scrutiny.

But the bank said it was not liable for his loss. The manager did not observe any red flags when processing the transaction and was simply following the victim’s instructions.

The man complained to the Banking Ombudsman, who began an investigation. A preliminary decision this week found in ASB’s favour.

Banking Ombudsman Nicola Sladden declined to award compensation to the victim, saying ASB was not "on notice" about the man being defrauded.

The decision said the case hinged on whether ASB ought to have detected “a real possibility” that the victim was being defrauded. It found there were no such red flags in this case.

Investment scams impersonating legitimate financial services providers were known at the time but not “as well-known as they are now”.

Though the Banking Ombudsman provided an investment scam warning to banks a few weeks before the victim was defrauded, the decision found there was not sufficient time for banks to have implemented changes “as a result of our suggestions”.

And while the name of the recipient account was different to the entity the victim thought he was investing in, bank staff “were not expected to be familiar with the types of accounts that receive investments”.

“We cannot conclude the circumstances of the payment were so unusual or suspicious to put the bank on notice of a real possibility” the victim was being scammed.

An ASB spokeswoman said the manager followed due process when executing the payment and there was nothing to indicate it was a scam. NZ banks currently had no way to verify the names of recipient accounts.

ASB was investing heavily in fraud prevention and cyber security but customer vigilance remained critical in preventing scams.

The victim has been off work since losing his money, suffering anxiety and depression.

He told the Herald he felt the Banking Ombudsman Scheme was weighted heavily in favour of banks. While the finding was not unexpected, it was still upsetting given the sector’s monster profits.

“They’re making billions and billions of dollars, and for most [investment scam victims] you’re talking a couple of hundred thousand, which for the banks is a pimple.”

He had no choice but to accept the finding and move on.

“I could go and jump off a cliff but nobody wins and that’s not a place I want to take myself.”

Consumer NZ said New Zealand had fallen well behind comparable countries in terms of consumer protections and fraud reimbursement.

The fact a bank staff member helped execute the victim’s fraudulent money transfer exposed a serious systemic flaw.

“The current system puts too much emphasis on an individual’s ability to spot and prevent a scam. But if a professional banker is unable to identify the hallmarks of a scam, how can we expect the average consumer to be able to?”

In February, Commerce Minister Andrew Bayly instructed banks to introduce urgent measures to protect customers and reimburse scam victims or risk having changes forced upon them through regulation. He gave the sector until September to help stem the $200 million Kiwis were losing to scammers each year.

A spokeswoman for Bayly said banks had provided a draft proposal which was currently being reviewed. An announcement was expected within weeks.

Banking Association chief executive Roger Beaumont said banks had responded to the minister in line with his February letter and were “discussing next steps”.