Both banks and customers have a role to play in preventing ATM fraud.
Readers may be aware of the recently reported fraud cases involving the withdrawal of money from automatic teller machines (ATMs). Although the frequency of cases reported so far in Hong Kong is not as high as in many overseas jurisdictions, this is a serious matter. We have thus urged banks to take additional precautionary measures to protect themselves and their customers against this type of fraud, and we have advised them to be proactive in handling customer complaints. The banks have been responsive to these suggestions and are tackling the matter actively.
The Code of Banking Practice, promulgated after consultation with banks, gives significant coverage to the provision of card services to customers. Section 30 of the Code specifies that, provided that the cardholder has not acted fraudulently or with gross negligence, card issuers will bear the full loss incurred, among other things, when transactions are made through the use of counterfeit cards. ATM frauds thus cause financial loss to banks. They may also undermine customers' confidence in the use of ATMs, which would run counter to the banking industry's efforts in encouraging greater use of electronic channels of delivery. It is therefore in the interests of banks to prevent ATM frauds.
It is likely that at least some of the suspected cases of fraud in Hong Kong involve tampering with the ATMs themselves. There is thus a need to take precautionary measures that give greater "protection" to the ATMs, particularly those located in less secure areas. It is, of course, for the individual banks, exercising their own judgement, to determine the appropriate precautionary measures needed. But in view of the potential implications of ATM frauds, if not checked, on depositors' confidence, we took the initiative to discuss the matter with the banks and the ATM network providers. As a consequence, we issued a circular on 14 October 2003 to the banks, urging them to consider the following precautionary measures:
-
enhancing the security features of ATMs;
-
monitoring ATMs continuously by installing closed-circuit television;
-
implementing a mechanism that records relevant information on ATM cards or credit cards so that banks can determine whether an unauthorised ATM transaction is carried out through a counterfeit card;
-
patrolling ATMs more frequently during and after office hours;
-
encouraging customers to report any suspicious devices detected on ATMs and providing them with the relevant telephone number to do so at the ATMs; and
-
alerting customers if any unusual transaction patterns are noted.
We have also recently sent out a survey to banks that offer ATM services to collect information about the precautionary measures they have implemented, or plan to implement, to protect their ATMs. We shall assess individual banks' measures and, where necessary, require banks to enhance them. Our supervisory staff will also monitor and follow up individual banks' progress in implementing appropriate precautionary measures.
There is a need also for depositors to exercise greater care in protecting their cards and PINs. The banks will do their part in alerting their customers to this need through placing stickers on the ATMs and through other publicity materials. For handling cases involving customers who may have the bad luck to be victims of ATM frauds, we have also in our circular reminded the banks of the "Complaint Handling Procedures" spelt out in the HKMA's Supervisory Policy Manual. Banks are required to have systems in place to ensure that customer complaints are fully and promptly investigated and resolved in a satisfactory manner. While the Police should be notified as soon as possible, given the suspicion of fraud involved, the internal investigation of the banks should be conducted promptly and the complainants kept informed. Once the banks have sufficient evidence from their internal investigations that the bank customers should be compensated, they should do so without delay and without waiting for the Police report.
Joseph Yam
23 October 2003
Related information:
Click here for previous articles in this column.
Document in Word format
