Banks Under No Duty to Play Detective

Financial Fraud – Banks Under No Duty to Play Detective, High Court Rules

To what extent, if any, are banks under an investigatory duty to protect their clients from fraud? The High Court considered that critical issue in a case concerning a woman who lost £700,000 after falling victim to a sophisticated scam.

The woman made international payments from her bank account after a fraudster convinced her that her money would be safe and that she was assisting an investigation by the Financial Conduct Authority and the National Crime Agency. Although she had been tricked into making the payments, the bank took the view that she had authorised them and denied any responsibility to reimburse her.

She sought damages from the bank on the basis that it was under a duty to protect her from the devastating consequences of the fraud. She asserted that, had the bank lived up to that duty, it would have further questioned the ostensibly freely willed transactions so that they would have been stopped, or at least delayed sufficiently to give her a chance to recover her money.

The bank responded that her claim was misconceived. It argued that it was under no duty to protect her from the consequences of the payments that she had authorised in reliance on a fraudulently induced belief. Any such duty would conflict with the bank’s obligation to comply with its customers’ instructions. The true cause of her loss was her willingness to make the payments and the bank was under no obligation to second-guess her instructions.

Ruling on the matter, the Court noted that the woman was seeking to impose on the bank certain standards of detective and investigative work, including potential liaison with the police, aimed at identifying suspect payments. As such, she was inviting the Court to extend the scope of the bank’s duties beyond established boundaries. Even were the existence of such a duty established, it would be subordinate or ancillary to the bank’s primary duty to act on its clients’ instructions.

It was commercially unrealistic to expect bank staff to question outwardly genuine client instructions. To require the bank to carry out detective work, or to act as gatekeeper or guardian in relation to the commercial wisdom of customers’ decisions, would be unduly burdensome.

Despite expressing acute sympathy for the woman, the Court found that extending the bank’s duty of care to cover the facts of her case would be unprincipled and impermissible. It would not be fair, just or reasonable to impose such a duty. The Court entered summary judgment in favour of the bank.

Scroll to Top