Safer Financial Services

The introduction to a recent article by Carmel Ricard, for Legalbrief, sounded very familiar as it applies, equally, to financial advisers.

“Crooked lawyers make the headlines so often that it’s easy to overlook a different truth: by far the majority of the profession are decent people, dedicated to the law and to helping people negotiate their way through its labyrinths.”

“In fact, some are themselves victims of criminal scams related to their profession.”

The article discusses a recent High Court case where the lawyers handling the transfer of a property fell victim to a scam involving a series of hoax e-mails.

In the case before the court, everything appeared to follow the normal procedure until the attorneys received an email from the client requesting that their banking details be changed from Investec to FNB.

“The lawyers replied by sending a blank document to be completed, giving them power of attorney to transfer the funds into the FNB account. This form was returned to the lawyers with what looked very much like Lochner’s signature in the relevant places.”

Transfer was registered on the same day, and the parties were told via sms that payment would be made within two to three business days. The day after that, the total amount due was transferred from the law firm’s trust account into the FNB account. The firm then sent an sms and an e-mail to the Lochners informing them of the deposit and giving them a final reconciliation.

Three days later the clients enquired about the funds, only to be told that it was paid into their FNB account, as requested. The clients indicated that they had no FNB account.

When the lawyers looked more closely at the e-mails from 16 August onwards, instructing them to pay into an FNB account, they saw that the messages came from an address almost identical to that of the client’s wife, but with one letter added.

The lawyers, their bank and the client immediately contacted FNB’s fraud division to block the account. According to the article, they were assured that the account would be blocked immediately, and, “…by the end of the day, they were informed that the account was indeed blocked.”

“But it turned out this was not so. A number of smaller withdrawals totalling R12 000 were made from that account between 18 and 22 August, while a large withdrawal was made on 23 August, four days after FNB claimed to have blocked the account. The balance was saved.”

The case has not been concluded, but the article notes that the Attorneys Insurance Indemnity Fund issued a statement last year that it would no longer cover ‘cyber crimes’ with effect from July 2016.

“With that threat hanging over the heads of attorneys and their clients, it’s obviously imperative that lawyers be more vigilant than ever – and that somehow, warnings about this scam be circulated to every member of the profession.”

On Monday we published an article in which Patrick Brasher of Norton Rose Fulbright said about the new Policyholder Protection Rules (PPR) and Demarcation regulations:

“There is a criminal offence and a penalty if you breach them, and they are in such vague terms that you won’t know whether you’ve breached them or not.”

We know that PI cover has become unaffordably expensive in the UK, following numerous claims after stricter regulation.

All we can pray for is sanity and an appreciation of the practical impact of proposed legislation to ensure that it does not fail in its baseline duty, which is to provide a safer financial services industry for consumers.


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