‘Banks should shoulder more losses from digital scams’

MANILA, Philippines — Banks and other financial institutions should bear greater responsibility for losses from digital scams when these stem from weaknesses in their own controls, according to global management consulting firm Arthur D. Little (ADL).

Wendell Tan, principal at ADL’s Financial Services Practice, said stronger consumer protection would be critical as fraud, scams and mule accounts continue to undermine trust in digital financial services.

“On liability, I do believe institutions should bear greater responsibility where losses reflect a failure of controls,” Tan told The STAR in an interview.

He cited inadequate transaction monitoring, weak authentication, poor fraud warnings and slow action after a customer reports suspicious activity as examples of failures that could justify greater institutional responsibility.

The Anti-Financial Account Scamming Act, or Republic Act 12010, has also strengthened the liability of banks and other financial institutions.

Under the law, institutions may be required to restitute funds when losses result from inadequate risk management systems or failure to exercise the required degree of diligence. Those that fail to temporarily hold disputed funds when required may also be liable for resulting losses.

However, Tan stressed that this should not translate into automatic reimbursement for every scam victim, as the circumstances of each case may differ and customers also have responsibilities.

“But the burden should not fall almost entirely on the victim when the institution controls much of the system,” he said.

Tan said a fairer approach would assign responsibility based on which party could reasonably have prevented the loss. This could involve banks, electronic wallets, telecommunications companies, digital platforms, regulators and law enforcement agencies.

To strengthen consumer trust, he said financial institutions need better real-time monitoring of suspicious activity and improved systems for detecting unusual transactions and mule accounts.

Banks and other providers should also issue clearer warnings at the point of payment and develop faster mechanisms for freezing and recovering funds across institutions, he said.

“Equally important, dispute handling must be simple, time-bound and transparent,” Tan said.

Beyond measures adopted by individual institutions, ADL said the Philippines needs a broader “trust layer” to support the continued expansion of digital finance.

This should include shared fraud intelligence among institutions, stronger controls against mule accounts, real-time protocols for freezing funds, common standards for handling disputes and more resilient cybersecurity systems.

“Without this trust layer, greater connectivity simply allows risk to travel faster,” he said.

Tan said these protections should be developed alongside efforts to expand digital access and connectivity, rather than introduced only after more Filipinos have shifted to online financial services.

“The goal is not only more technical links but also a financial architecture that people and merchants can use confidently,” he said.