Push payments, crypto-fraud, ESG and interest rate jumps

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Saturday January 22, 2022 7:20 p.m.

Push payments, cryptocurrency fraud and a rise in interest rates could lead to more litigation in the financial services industry in 2022, an industry expert explained with City AM over the weekend.

One of the biggest drivers of financial disputes this year could be authorized push payment fraud.

Authorized push payment fraud involves fraudsters tricking consumers or individuals in a business into sending payments to a bank account controlled by the fraudster.

According to Daniel Hemming, partner at law firm RPC, an increasing number of large corporations are now being impacted by push payment fraud as emboldened fraudsters pursue broader targets than consumers.

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The Saudi subsidiary of multinational engineering company Maire Tecnimont was recently the victim of a push payment fraud. The company has taken legal action against its bank, NatWest, for failing to prevent the fraud.

“Authorized push payment fraud is a growing problem for the businesses that fall victim to it and the banks that service the accounts involved in the fraud. The risk of this type of fraud will only increase in 2022 and could lead to increased litigation,” Hemming told City AM.

Crypto Fraud

Another area that could see an increase in financial disputes is cryptocurrency fraud. This is an area that was previously seen as a consumer issue with relatively small scale cases, but is now generating higher value litigation and is expected to continue growing in 2022.

A recent dispute involves a cryptocurrency exchange in the United States, where a large amount of cryptocurrency was lost due to fraud. A number of people have made claims against the cryptocurrency exchange demanding the recovery of their assets.

These cases are often difficult as it can be difficult to identify fraudsters and track stolen crypto-assets. But RPC adds that with sophisticated tracing tools and freezing orders against “unknowns”, there is hope.

ESG

2022 could also be the year in which ESG claims against financial institutions become more widespread, Hemming continued, including issues related to the mis-selling of products in terms of green credentials.

Increased ESG disclosure requirements mean that any discrepancy between what financial institutions say about ESG and what they do could lead to more litigation against financial institutions.

This is especially true if they overestimate the ESG credentials of their products.

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“Most banks are very focused on their potential exposure to ESG issues. There have already been a few complaints, mostly brought by NGOs and activists trying to get information about the banks’ activities,” Hemming said.

“But there could well be mis-selling claims against banks and fund managers, for example if products turn out not to have advertised ESG credentials and investors suffer losses,” he said. added.

Interest rate

Finally, further interest rate hikes next year could also lead to a series of financial disputes, Hemming pointed out.

The last time there was a significant movement in interest rates was the financial crash of 2008. This was a major cause of financial litigation and affected derivative contracts in particular.

Hemming noted that interest rate derivative contracts often give rise to disputes between the parties entering into them.

They can often be profitable for banks, but expose them to litigation when interest rates move sharply and leave customers facing substantial losses.

There have been few new claims in this area from a historic period of low and stable interest rates, but if rates continue to rise after last week’s base rate increase to 0.25%, there will be winners and losers, Hemming concluded.

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