Also: Turkish crypto exchange’s missing $2bn; online payment scams rise during Covid. Data by ORX News
Turkish cryptocurrency exchange Thodex was responsible for April’s largest operational risk loss, after the platform ceased operations leaving its 400,000 users unable to access an estimated $2 billion in digital assets.
On April 19 and 20, Thodex announced that trading would be halted for six hours for maintenance following transaction problems on its platform. On April 21, Thodex users reported difficulties transferring money before the website became inaccessible and traders were barred from their accounts. It later emerged that the exchange’s founder, Fatih Faruk Özer, had left Turkey, reportedly travelling to Albania or Thailand.
Traders subsequently filed criminal complaints alleging that Özer had taken the money they had deposited for trading on the platform with him when he left Turkey.
Turkish authorities suspended all Thodex user accounts, blocked the exchange’s Turkish bank accounts, and began a criminal investigation. As of April 25, 68 suspects had been arrested in Turkey as part of the probe and warrants for a further 80 suspects had been issued.
Özer released a statement saying the allegations were unfounded and part of smear campaign against the company. As of April 26, Özer was still at large.
In April’s second largest publicly reported loss, ABN Amro paid penalties totalling €480 million ($580 million) after the Dutch public prosecutor found “serious shortcomings” in the bank’s anti-money laundering processes between 2014 and 2020.
An investigation by Dutch government agencies found that important client information was missing from files and that risk assessments were deficient. Notably, the bank had failed to close undesirable client accounts quickly enough, and then allowed some terminated clients to open new accounts. There were also gaps in client due diligence and wider reporting failures.
The settlement consisted of a fine of €300 million and disgorgement of €180 million, based on the amount of money that the bank was estimated to have saved by failing to employ the requisite number of compliance staff.
April’s third largest loss saw JP Morgan paying up to $18.8 million to settle a class action lawsuit in which the bank was accused of mortgage malpractice. A number of mortgage borrowers alleged that its retail bank, Chase, had not paid the legally required 2% interest on amounts held in escrow, a legally guaranteed minimum in some US states. The bank was also accused of other deceptive business practices, breach of contract and unjust enrichment.
In the fourth and fifth largest losses, Bank of America and Credit Suisse were fined €12.6 million and €11.9 million respectively by the European Commission for colluding in secondary market trading for bonds.
Crédit Agricole was also fined €4 million for its own role in the cartel and Deutsche Bank, which was involved in the cartel, avoided a €21.5 million fine after it reported the activities to the European Commission.
The commission found that between 2010 and 2015, a core group of traders working in each bank’s dollar sovereign, supranational and agency (SSA) bond division were in regular contact via online chatrooms. The traders provided each other with updates on their trading activities, swapped commercially sensitive information, co-ordinated on prices shown to their customers, or to the market in general, and aligned their trading activities in the secondary market for SSA bonds.
Spotlight: Overcharging on overdrafts costs CBA A$7m
Commonwealth Bank of Australia was ordered to pay a penalty of A$7 million ($5.5 million) by the Federal Court of Australia for charging substantially higher interest on business overdraft accounts than it had advised customers.
An Australian Securities and Investments Commission investigation found that CBA had overcharged customers on 12,119 occasions, violating two sections of the Asic Act.
CBA admitted to providing certain customers with statements relating to a rate of around 16% a year – in most cases – but that it had charged more than 1,510 customers a different, higher overdraft rate – in most cases around 34% a year – due to a systems error.
Total overcharged interest exceeded A$2.2 million.
In announcing the penalty in April, Asic said CBA had remediated A$3.74 million to customers for a total loss of A$10.7 million.
In Focus: Sharp rise in Covid-era scams could bite banks
Financial fraud and attempted scams increased by two-thirds for some UK firms in the first half of 2020, as fraudsters took advantage of a year of Covid-induced disruption. Figures from Barclays showed a 66% increase in reported scams during the first UK lockdown starting in March 2020, versus pre-pandemic levels.
Evidence of cryptocurrency fraud during the March 2020 UK lockdown has since emerged, as fraudsters were reported to be offering fake investments to target marks. Similarly, impersonation scams, where fraudsters trick victims into believing they are tax officials, utility providers or bank staff – covertly seeking payment or personal information – have come to light. In June 2020, reports of impersonation scams to Barclays were double those of the previous month. In addition, fraudsters have also targeted government loan schemes aimed at providing pandemic relief.
And with nine UK banks now party to UK Finance’s voluntary code to protect customers against authorised push payment (APP) scams – and agreeing to reimburse eligible customers who fall victim to these – any sharp increase in the number of frauds could create a financial headache for those banks.
Losses are already material: in the year to March 2020, TSB paid out £17.5 million ($24.4 million) in reimbursements to affected customers. TSB has gone a step further than some of its peers, introducing measures that exceed those outlined in the voluntary code and promising to refund all who fell victim to an APP scam, rather than just those that passed certain ‘no-blame’ criteria in the voluntary code. In its 2020 annual report, TSB said it paid out to 99% of customers that suffered loss from an APP fraud during the year, against an industry average of 38%.
In total, UK Finance said that £208 million had been stolen in APP scams in the first half of 2020, which was broadly in line with the total from the same period in 2019. However, the same period saw some sharp increases in some specific fraud types. For example, impersonation frauds in the UK increased 84% between the first half of 2019 and the first half of 2020. And internet banking fraud was up 32% during the same period. There was a decline in older types of fraud such as cheque or telephone fraud.
UK consumer group Which? found that just 41% of claims under the UK Finance voluntary reimbursement code are paid. As a result, there have been calls from consumer groups for more effective procedures to ensure more customers are reimbursed, and for sanctions against fraudsters to be stepped up in the upcoming UK online safety legislation.
However, banks may not be able to quantify the impact of pandemic-related fraud for some time, as losses from increased Covid-19 related fraud may not yet have fully materialised.
And the method of compensating fraud victims is changing. Previously, reimbursements made under UK Finance’s voluntary code were taken from a fund supplied by the signatories. But, in April 2021, UK Finance announced the banks themselves would oversee the end-to-end refund process and allowed banks to pay back customers individually, rather than through the central shared funding pot.
Editing by Alex Krohn and Louise Marshall
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