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HSBC’s Failures Exposed: How Customers Lost $23 Million

HSBC’s Failures Exposed: How Customers Lost $23 Million

The Australian Securities and Investments Commission (ASIC) has initiated legal action against HSBC Australia, alleging serious failures in fraud prevention. The case involves accusations of widespread and systemic shortcomings in safeguarding customers, resulting in a collective loss of $23 million to scams over five years.

Allegations of Widespread Failures

ASIC alleges HSBC Australia failed to address unauthorised transactions despite knowing the risks since January 2023. The corporate watchdog claims HSBC’s fraud controls had significant gaps, exposing 950 customers to scammers.

ASIC Deputy Chair Sarah Court described the bank’s shortcomings as “widespread and systemic.” She stated, “We allege HSBC Australia was aware of the risks of unauthorised transactions occurring and that there were gaps in their fraud controls.”

Customer Losses and Delayed Investigations

According to ASIC, the scams led to devastating financial losses for HSBC customers. Some individuals lost over $90,000, while the total scam amount reached $23 million. Between October 2023 and March 2024 alone, customers lost $16 million to scams.

ASIC also criticised HSBC’s slow response to reported fraud cases. The regulator revealed that HSBC took an average of 145 days to investigate unauthorised transactions, far exceeding the required 21 days. In some cases, the delays reached 542 days, leaving customers locked out of their accounts for months.

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Scam Mechanisms

The scammers used sophisticated tactics to deceive HSBC customers. Fraudsters employed software to disguise their phone numbers, making their messages appear legitimate. Customers received fake warnings about suspicious transactions and were directed to call a number that connected them to a fraudulent “fraud team.”

These scammers replicated HSBC’s on-hold messages, further convincing victims of the scheme’s legitimacy. ASIC alleged HSBC Australia’s failure to monitor and detect such fraudulent activities allowed the scams to continue.

Regulatory Non-Compliance

ASIC alleges HSBC failed to meet its legal obligations under the corporations law, the National Consumer Credit Protection Act, and the e-payments code. The corporation law mandates banks to act “efficiently, honestly and fairly.”

ASIC will argue HSBC did not have adequate systems to ensure timely investigations into unauthorised transactions. The bank also allegedly failed to promptly restore customer access to accounts after fraud reports.

Poor Compliance Track Record

ASIC revealed HSBC’s compliance record for handling unauthorised transaction investigations:

  • 0% compliance in 2020
  • 4% compliance in 2021
  • 15% compliance in 2022
  • 2% compliance in 2023
  • 14% compliance in 2024 (up to August 15)

The regulator noted that in two-thirds of cases, HSBC’s investigations took over 100 days, far exceeding the required 45-day standard.

Calls for Accountability

ASIC Deputy Chair Sarah Court stressed the need for banks to fulfil their responsibilities. She said, “All banks need to pull their weight in the fight against scams. We will not hesitate to take court action where we consider banks fail to comply with their obligations to protect their customers.”

Consumer Action CEO Stephanie Tonkin echoed these sentiments, describing the situation as “heartbreaking.” She said, “Many lost life-changing amounts and then had to take on an adversarial HSBC, which fought them tooth and nail.”

HSBC’s Response

HSBC acknowledged ASIC’s claim and stated its commitment to addressing fraud and scams. A spokesperson said, “We are considering the matters raised and will continue to co-operate and work constructively with ASIC. Protecting our customers from scammers remains a top priority. We continue to make significant investments in our fraud and scam prevention, detection, and response.”

Broader Impact of Scams

Scam losses across Australia have surged, prompting increased attention from regulators and banks. The National Anti-Scam Centre reported $2.74 billion in scam-related losses in 2023.

Stephanie Tonkin highlighted the importance of faster redress for scam victims. She said, “ASIC’s action against HSBC on Monday reaffirms why it would be important for the federal government’s scams prevention framework bill to put fast and simple redress for victims front and centre.”

ASIC’s Legal Demands

ASIC seeks declarations of contraventions, pecuniary penalties, adverse publicity orders, and costs in its case against HSBC. The Federal Court will assess whether HSBC breached its obligations and failed to protect its customers from scammers.

The Road Ahead

ASIC’s case against HSBC underscores the pressing need for banks to strengthen fraud prevention measures. The regulator’s actions signal a broader push for accountability in the financial sector, ensuring customers are protected from scams.

Australia’s financial system faces mounting pressure to enhance safeguards as scammers continue to exploit vulnerabilities. This case could serve as a turning point in holding institutions accountable for failing to protect their customers.

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