The Government has fired a shot across the bow of the banking sector, calling for the immediate introduction of new measures to protect customers from scams - and reimburse victims who lose life-changing sums of money.

If banks fail to act by a September deadline, there is now a risk they could have changes forced upon them through regulation.

Commerce and Consumer Affairs Minister Andrew Bayly has written to the NZ Banking Association saying retail banks need to strengthen their processes to give Kiwis better safeguards from organised criminals.

“Altogether, nearly $200 million was lost to scams last year. This needs to change,” he told the Herald.

Bayly has instructed the banks to investigate a voluntary reimbursement scheme to improve consumer compensation, like that in force in the UK where banks are now required to refund customers who are tricked into authorising fraudulent payments to scammers up to a limit of £450,000 (NZ$933,000).

Under current rules NZ banks are not required to reimburse customers who authorise the payments unless banks have missed obvious “red flags”.

Bayly has also called on banks to progress work to implement “confirmation of payee” technology - allowing customers to check the name of the account they are sending money to - and wants the Code of Banking Practice updated to protect customers.

“Scams are becoming more sophisticated and causing a growing number of vulnerable Kiwis significant emotional harm and financial loss,” Bayly said.

“I have written to the banking sector, setting out my expectations. I will monitor progress in the coming months.”

Pushed by the Herald on whether he would regulate the banks if they failed to act voluntarily, he replied: “We’re certainly asking them to move at pace.”

Bayly said he’d given the banking sector until September to set out how it was responding.

“We’re making a decision at that point. I’m not going to prejudge that. I hope they do come back with something that give people confidence.”

Today’s announcement follows months of pressure on retail banks amid a surge in investment scam cases where offshore criminal syndicates have exploited our payment system to fleece hundreds of millions of dollars from unsuspecting Kiwis.

Banking Ombudsman Nicola Sladden has warned that public trust in the banking sector will erode unless urgent action is taken to protect customers.

Yesterday, Banking Ombudsman Nicola Sladden warned that banks needed to urgently improve fraud detection systems, implement account name matching technology and consider a voluntary reimbursement scheme for victims.

She also called for the introduction of a coordinated anti-scam centre and for the FMA to conduct a review of the Code of Banking Practice, saying the changes were urgently needed. Further delays would erode trust in the banking sector.

Consumer NZ said banks had failed to protect customers despite repeated warnings and it was time the Government forced their hand by wielding a “big stick”.

Minister for Commerce and Consumer Affairs Andrew Bayly. Photo / Hagen Hopkins

Today, Bayly said the Government supports last year’s recommendations from the Finance and Expenditure select committee on bank scam processes.

In August the committee recommended investigating a voluntary compensation scheme for victims, implementing confirmation of payee, and for the Government to “urge” the NZ Banking Association (NZBA) to update its Code of Banking Practice to “offer further measures that help protect consumers from scams and fraudulent activity”.

The committee said the proposed measures would have a positive impact on consumer protection, as banks and consumers grappled with a rising tide of financial crime and bank fraud.

Bayly agreed, saying: “Bank processes need to be strengthened to give Kiwis better protections.

“A range of industry work is already underway, including establishing a confirmation of payee service, but there is more to be done.

“We agree that the Code of Banking Practice needs updating to protect consumers, and banks should investigate a voluntary reimbursement scheme to improve consumer compensation.”

Roger Beaumont, chief executive of the New Zealand Banking Association. Photo / Dean Purcell

NZBA chief executive Roger Beaumont yesterday backed calls by Sladden for digital platforms to remove fake websites, which were often at the start of a chain of events leading to scams.

“Banks have got the ball rolling on the anti-scam centre by targeting mule accounts. Involvement from government and other sectors would take the anti-scam centre to the next level.”

He said retail banks unveiled a suite of initiatives in September to prevent scams and protect customers, including a confirmation of payee service.

“This is a priority for the industry with work under way to implement it.”

Consumer NZ chief executive Jon Duffy said the watchdog’s latest research showed one-in-10 households had lost money to a scam in the past year.'

“In reality, the total figure lost to cyber criminals last year is likely to be significantly more than $200m.

“Given the scale of impact on New Zealand households, we are concerned that asking banks to voluntarily reimburse scam victims won’t go anywhere near far enough to address the great, ever-present and evolving threat that cyber criminals pose to us all.”

While Duffy welcomed today’s moves from the Government, he said New Zealand was already so far behind other countries when it came to scam protections.

“The banks need to catch up, and fast, and it’s on the Government to make that happen.”

Sladden welcomed today’s announcements to strengthen consumer protections.

“We have been calling for stronger action and for a consistent approach across the banking sector to prevent scams.

“We see first-hand the emotional and financial cost of scams. As we continue to move to digital banking, it is critical that customers can bank safely.”

Sladden said comprehensive, mandatory codes of practice were needed for banks, telecommunication companies and digital platforms governing their responsibilities in preventing scams and respective liability.

The Banking Ombudsman Scheme received about 75 scam complaints a month “and behind each of these cases is a story of financial loss and emotional trauma”.

The amounts lost were sometimes hundreds of thousands of dollars.

“The psychological impact can be profound.”

Since 1 July 2023, the scheme had received almost 600 scam-related cases, 32 per cent higher than the same period last year.