Parliamentary panel advocates automated compensation process for banking fraud victims
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A parliamentary panel has advocated an automated compensation process for banking fraud victims.
It further reiterated recommendation of setting up of a Central Negative Registry for consolidated information on fraudsters’ accounts and the official documents various agencies have utilised.
Present system, as prescribed by the Reserve Bank of India’s (RBI) circular dated July 6, 2017, there are two conditions when a customer has zero liability in case of unauthorised transaction.
The bank is primarily responsible for contributory fraud, negligence, or deficiency, regardless of whether the customer reports the transaction.
Second, a third-party breach occurs when the deficiency lies neither with the bank nor the customer but elsewhere in the system. In such cases, if the customer notifies the bank within three working days of receiving communication about the unauthorised transaction, appropriate action will follow.
In case, a customer report within 4 to 7 days, maximum liability of the customer would be between ₹5,000 to ₹25,000, depending upon types of the accounts.
If the delay in reporting is beyond 7 working days, the customer liability shall be determined as per the bank’s Board approved policy.
A complaint needs to be resolved within 90 days.
However, the Department related Standing Committee on Finance remain concerned that the current system, despite its provisions, still relies on a reactive approach, “Customers are obligated to report unauthorised transactions, with compensation dependent on the completion of further investigations and the traceability of funds. This process has often been made overly complex and time-consuming. This approach not only delays the resolution process but also leaves customers vulnerable during the interim period,” it said.
Further, it mentioned that the delays in resolving cases may not fully protect consumers from the immediate financial impact of cybercrime.
Accordingly, “the Committee reiterates its recommendation that the compensation process be automated, with financial institutions initiating compensation promptly, without unnecessary delays pending investigation or final traceability of fraud,” it said.
Further, it strongly reiterated the establishment of a centralised Central Negative Registry (CNR) would significantly enhance the ability to proactively prevent fraud by consolidating data from FIU-IND, MHA, NCRP, RBI, and CPFIR into one unified repository.
“This would not only streamline the identification of fraudulent entities but also ensure better risk management by enabling more effective due diligence by financial institutions,” it said.
Earliel, in a written reply, Minister of State in the Finance Ministry, Pankaj Chaudhary said that Comprehensive steps have been taken to keep a check on the banking frauds and deter fraudsters, which resulted in decline in amount involved in frauds over the years.
Further, based on a comprehensive review of the earlier Master Directions, Circulars and emerging issues, RBI, on July 15 this year revised its master direction.
The revised direction prescribed strengthening of the role of the Board in overall governance and oversight of fraud risk management.
It also said the framework on early warning signals and red flagging of accounts has been strengthened further for early detection and prevention of frauds and timely reporting to Law Enforcement Agencies and Supervisors.
“Establishment of dedicated data analytics and market intelligence unit in banks have been mandated for facilitating collection and processing of relevant information to enable an early detection and prevention of potentially fraudulent activities,” the circular said.