Fighting digital financial fraud: India needs new laws to reach global standards

The Department of Financial Services, under the finance ministry, has convened two meetings within three months, highlighting the increasing focus on tackling online financial scams. According to Reserve Bank of India data, digital frauds involving cards and internet banking amounted to ₹276 crore in FY23. While this figure may seem small in the context of the banking sector’s total assets, the expanding digital landscape underscores the urgent need for durable strategies to fight cybercrime, ensuring consumer confidence and trust.

In a joint effort, the Department of Telecommunications has blocked 140,000 mobile numbers involved in financial frauds, along with several lakh SIM cards. The department is also leveraging technology to identify and weed out mobile phone connections or mobile numbers which have been disconnected to prevent frauds. These and other digital initiatives are crucial steps forward, yet more needs to be done, especially regarding customer protection—a lesson underscored by global experiences and the current state of India’s financial sector grievance redressal mechanisms.

In contrast, Europe and the West are enacting new laws and securing commitments from major tech companies to shield consumers from online fraud. In the UK, for instance, the telecommunications regulator, Ofcom, is associated with a new law – Online Safety Act – which will kick in later this year. Major tech firms have agreed to a voluntary Online Fraud charter, committing to anti-fraud measures, including prompt detection of fraud and educating users on avoiding scams.

This complements the National Economic Crime Plan and Fraud Strategy, unveiled last year and to run until 2026, aiming to curb financial crimes with the cooperation of tech firms, social media platforms, and telecom companies. The UK’s Financial Conduct Authority (FCA), mandated to protect consumers, is working with the government on legal and regulatory backing for financial firms to slow payments when they suspect a fraud. The payment systems regulator has now made it mandatory for banks and payment companies to ensure that people get their money back if they are victims of what they call Authorised Push Payment Fraud. The regulator with the backing of a new law will be able to direct companies to reimburse customers.

In India, the challenge often lies in the asymmetry between banks’ sales of products and services and the resolution of disputes. For consumers, navigating the process of reporting digital financial frauds and reclaiming lost funds often becomes a test of endurance and determination. Unfortunately, the ombudsman schemes and banks’ dispute resolution mechanisms frequently fall short of providing effective support. Consequently, many customers, facing digital financial fraud, find the process of recovery daunting and ineffectual, leading them to bear the loss rather than pursue legal action, which can be costly and emotionally taxing.

To address this, Indian lawmakers have proposed creating a cyber consciousness index to gauge cyber security awareness. Discussions are underway between the Department of Financial Services and banks to develop a Standard Operating Procedure for refunding victims of financial frauds. That should be come with mandatory commitments on payment deadlines, response time and with accountability built in. India, too, may need to consider new legislation for consumer protection and cyber safety, especially as it seeks to expand its digital payment systems internationally and confront the potential misuse of artificial intelligence (AI) in digital frauds.