Page 42 - The Insurance Times November 2024

FEATURE

Legal liability for fraud in digital payments

I n the first four months of 2024, Rs. 1,750 crore has winded, and there is no assurance that victims will receive

their lost funds. A fair and clear legal liability framework for
been lost to cyber criminals. Victims are being
targeted using online investment and trading scams,
fraudulent transactions could ensure protection and
fake digital arrests, and OTP forwards, amongst
others. During its annual conference in January, the Indian adequate compensation to victims, while investigative
action continues in tandem. For such a framework, certain
Cybercrime Coordination Centre (I4C, Ministry of Home questions must be debated: Who is responsible for
Affairs) reported that while some proportion of the amount permitting the scam attempt? Did the victim take adequate
that has been defrauded by scamsters since April 2021 was steps to prevent themselves from falling prey? What are the
"blocked due to prompt government initiatives", only 9-10 limitations to the compensation being offered? We discuss
per cent of the same has been returned to the victims. these below.
With many Indians being first-time digital payment users, Key Issues
susceptibility to scams combined with the unpredictability Discerning eligible and authentic complaints for
in the recovery of defrauded funds, can lead to a loss of trust
compensation: It is important to identify whether users may
in digital interfaces. This situation is counterproductive to
have directly or indirectly authorised a transaction, whether
the policymakers' goal of encouraging more digital the entity to whom the money was transferred was the
transactions, especially through payment systems like the
intended entity, and whether scamsters exploited previously
Unified Payment Interface (UPI).
unknown system-level vulnerability or not to perpetrate the
Legal liability and compensatory frameworks exist in India fraud.
for unauthorised electronic transactions. However, the
Laying out standardised criteria to determine eligible
modus operandi in many common scams involves users being
complaints can streamline the process flow while also
manipulated into authorising transactions. Technically, these
helping reduce the chance of nefarious actors from gaming
transactions are authorised by users themselves, even
the system's response mechanisms. Centralised fraud
though they did not intend to transact with a scamster. This
analytics and intelligence systems that are linked in real-
renders such transactions to fall outside the perimeter of
time to existing fraud databases can play a critical role in
any existing legal liability or compensation frameworks. In
establishing the authenticity of incoming complaints given
July 2023, a Standing Committee on Finance's report on the
its capabilities in triangulating information.
Rising Incidence of Cyber/White Collar Crimes mentioned an
"automatic compensation" that may be used to Establishing that the user was not negligent: A minimum
"immediately compensate the hapless customer, pending standard of caution may be considered when assessing users'
further investigation and final traceability of funds". negligence as part of a fraud attempt. This means that a
complaint can become eligible for automatic compensation
This recommendation is a good starting point for
only after being subjected to certain checks against
conceptualising a framework for the apportionment of
negligence on the complainant's part. These standards may
liability for different ecosystem entities that can limit user include checking whether the users had acted as per
losses and improve investments in prevention and detection
warnings and cautions issued by their banks, UPI apps or
systems by banks, TPAPs (third party application providers),
the NPCI and RBI, whether they promptly reported any
and other participants.
fraudulent incidents to banks or relevant stakeholders, and
Investigations for fraudulent transactions can be long- if they were responding appropriately and reasonably to
The Insurance Times November 2024 37