Office of the Arbiter of Financial Services - Creating an orderly market
Creating an orderly market
The Office of the Arbiter of Financial Services (OAFS) has a video on its website explaining scams, and the cartoon character bears a strong resemblance to genius Albert Einstein. It is no coincidence, OAFS management board chairman Geoffrey Bezzina explains.
As scams get more and more sophisticated, even geniuses can become victims, and with €3.76 million worth of payment frauds in Malta in the first half of 2023, according to a report by the European Central Bank and the European Banking Authority, there are enough red flags to merit attention. (It is worth mentioning that the total value of fraud across main payment instruments in EU banks was €2 billion for first half of 2023.)
One positive outcome of the work being done to social media posts and through regular TV and radio appearances is that more customers are on the lookout – as well as more aware of the potential for redress when they do get caught out.
Scams are only part of the OAFS caseload: in 2024, the OAFS registered a record 251 complaints, almost 70% up on that in 2023, and Mr Bezzina does not expect 2025 to be any less onerous.
While the caseload covers numerous financial services sectors, the Office is understandably concerned about scams, warning that the amounts involved may run into thousands and tens of thousands, with even experienced people falling foul of the scammers.
Apart from the ECB/EBA report’s data – which noted that Malta had the highest fraud rate in value terms, out of the EU member states – the Police Corps Office Against Fraud told TVM News a year ago that between 2022 and 2023, just over 1,000 persons in Malta were victims of online scams and collectively lost a staggering €21 million.
“We are still in discussion with regulators and other entities about having a national anti-scams campaign and action plan, which will of course require resources – both financial and human.
“I suspect that other forms of scams will come up and AI could exacerbate the problem even further resulting in situations where it will be very difficult for an individual to identify whether something is what it seems. Are you accessing the real bank website or an exact replica? For instance, we are already seeing AI-generated voice cloning where scammers can mimic the voice of a known individual. These deepfake voice scams are particularly concerning because they exploit our natural trust in recognising and trusting some of these personalities. The problem could be even worse if these persons mimic the voices of a family member in distress, convincing victims to transfer money urgently,” he said.
Although policy makers, regulators, banks and alternative dispute resolution frameworks around the world have come up with a substantial number of initiatives to reduce the likelihood of falling for a scam, Mr Bezzina believes strongly that more data is required.
“We received a few dozen scam cases, not an insubstantial number, but we do not know how many victims did not get as far as the OAFS. There is no obligation on the side of the banks and financial institutions to publish the number of complaints they receive, but I am sure they have more data internally,” he said, “which would be very helpful to build up a picture of where the complaints came from, the nature of the scam and so on. Policies should be data driven.”
He observed that several cases that were submitted to OAFS relating to payment fraud scams were resolved at mediation, driven by the application of the model that the Arbiter issued in 2023 on the sharing of responsibility in push payment scams between banks and customers.
“The model was challenged as part of the appeal against a decision delivered by the Arbiter in early 2024. The Appeal’s Court confirmed the Arbiter’s decision in its entirety, as was the application of the model,” he said.
The model was welcomed in various jurisdictions, and the Arbiter presented it at FIN-NET and the INFO Network, which represent fora of dispute resolution mechanisms in financial services in the EU and worldwide.
The Arbiter has also published a technical note on ‘pig butchering’. The technical note outlines the considerations that the Arbiter will adopt in determining complaints related to these sophisticated relationship-based financial fraud schemes.
“These are highly sophisticated scams and from the few cases that we’ve received, several customers have lost substantial amounts of money to fraud. The emotional and financial impact on victims can be devastating, often leaving them not only financially compromised but also experiencing significant distress and shame. We barely know about this impact on local customers.”
The OAFS has increased its outreach initiatives to promote knowledge about the Arbiter’s work and the different types of cases that are received.
“Despite our limited resources, we are posting a summary of an Arbiter’s decision weekly on LinkedIn and sharing lessons learned from these decisions on Facebook. We are also being invited as guests on TV and radio, during which we engage directly with consumers about aspects related to the OAFS work, financial services in general and scams.”
One of the desired outcomes of this outreach is not only to get people to take action, but to do so in time. Mr Bezzina explained that the OAFS has come across cases which were lodged well after the time period prescribed by law.
“My advice is always: if you have a problem, take action. It will not resolve itself, especially when investments are involved,” he said.
Mr Bezzina explained that law has to remain relevant and updated to reflect situations that the OAFS encounters through the various cases that it resolves.
“The Arbiter currently has competence to review complaints from customers of a financial service provider or a consumer who has sought a service from a provider, for example. This represents a contractual relationship between the customer and the provider, rendering the complainant ‘eligible’ to lodge a complaint. However, the Arbiter has encountered multiple complaints against locally-authorised payment institutions from individuals who transferred money to IBANs provided by fraudsters but issued by these institutions. The payment institutions contested these complaints on the grounds that the complainants were not 'eligible customers' under the principal Act, as no direct contractual relationship existed between them.
“This legal technicality compelled the Arbiter to dismiss these complaints due to lack of jurisdiction, despite potential concerns about the payment providers' due diligence during account opening and ongoing monitoring of the fraudsters' accounts”, Mr Bezzina said.
At the behest of the OAFS, the relevant legislation will be amended to render these complainants eligible customers as long as the entities involved are locally based and authorised by the MFSA.
“The suggested amendment seeks to expand the Arbiter's jurisdiction to include complaints from fraud victims, even when they lack a direct contractual relationship with the financial institution that processed the fraudulent transaction. We trust that the amendments, published in Bill No 117, will become law within the first few months of 2025”, Mr Bezzina said.
The day-to-day operations of the OAFS are also being improved. The staff complement of 11 is now operating from premises over Valley Road in Birkirkara and has been working hard to bring down the time required from registration – free as from the beginning of 2025 – to the final decision.
It has also published a 3-year strategic plan for the first time, having only issued annual ones till now.
“We will continue building on what we have done in previous years. This year, we hope to organise a meeting open to all stakeholders, employees and the public once the 2024 annual report has been published. This will allow us to share best practices and to communicate the lessons learned from decisions and share trends from complaints received,” he said.
You can find out more about the OAFS from their website: OAFS