Not upheld: fraud by authorised user; alleged failure to prevent embezzlement complaint against Clydesdale Bank Plc (trading as Virgin Money)

Decision detail

Summary

D, a company, hired X as an independent accounts manager to make payments to HMRC. Between January 2023 and November 2024, X fraudulently diverted £268,000.80 intended for HMRC to their own account. D complained to Virgin Money, claiming the bank should have prevented the fraud and reimbursed the losses. The investigator suggested a 50% reimbursement, but the ombudsman disagreed. The ombudsman found that Virgin Money was entitled to treat the transactions as authorised because X had authority to transact on the account, and there was no obligation to reimburse under the Payment Services Regulations 2017. Although Virgin has regulatory obligations to monitor for financial harm, the ombudsman concluded that theft by authorised parties is difficult to detect and Virgin's contact with X about the first payment was reasonable. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman concluded that Virgin Money was entitled to treat the transactions as authorised because X was tasked by D with making transactions on the account. Under the Payment Services Regulations 2017 and the account terms, there was no obligation to reimburse D. While Virgin has regulatory obligations to monitor accounts for financial harm, theft by authorised parties is difficult to detect through normal monitoring. When Virgin contacted X about the first payment, they reasonably believed they were speaking to a director (based on the contact details supplied), and the payment going to an account in a director's name was not sufficiently unusual to warrant further investigation or contacting the other director. After the first payment, subsequent payments would have appeared as established payees with no reported concerns, so further questioning would not have been reasonable.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website