HSBC UK Bank Plc · DRN-6054384

The complaint Mrs M complains HSBC UK Bank Plc trading as first direct (‘first direct’) won’t refund the money she says she lost to a scam. What happened The background to this complaint is known to both parties and so I will not set this out again here in full. In summary, Mrs M followed a company known for sourcing property deals for investors for a number of years – I’ll refer to as ‘F.’ Mrs M made a personal investment in an investment opportunity after being introduced by F. F subsequently shared the details of another investment opportunity with a company I’ll refer to as ‘C’. In brief, C was claiming to offer investments in specific property units on the understanding they would be refurbished and rented out for social housing through councils and housing authorities who they held contracts with. C also claimed this was a “government-backed scheme.” Believing all to be genuine, Mrs M proceeded to make a payment of £13,000 on 8 October 2024 to C. Mrs M was expecting to receive returns from C which did not materialise. Mrs M contacted first direct to report that she’d been scammed. first direct reviewed the information provided by Mrs M but felt it was unable to issue any clear decision on Mrs M’s claim until it knew the outcome of police investigations into C’s activity. As a result, Mrs M referred the complaint to our service. One of our Investigator’s looked into things and upheld the complaint. She considered the payment Mrs M made under the Faster Payments Scheme Reimbursement Rules (‘Reimbursement Rules’). In summary, she wasn’t persuaded it was fair for first direct to hold off on answering Mrs M’s claim as she thought there was sufficient evidence that C were likely a scam when the matter was reported. And our Investigator wasn’t persuaded any exceptions to reimbursement applied under the relevant reimbursement schemes and therefore recommended that first direct refund her in full. first direct appealed the Investigator’s outcome. In summary it said our service shouldn’t be considering this matter due to its complexity, and it should be allowed to wait for the outcome of the police investigation to answer Mrs M’s claim. first direct also stated that it does not believe that applying the Contingent Reimbursement Model Code (‘CRM Code’) in isolation – without appropriate regard to wider regulatory and criminal investigations – aligns with the CRM Code’s spirit of fairness to all parties involved. As an agreement hasn’t been reached, the complaint has been passed to me for a final decision. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable

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in the circumstances of this complaint. I’ve thought carefully about what first direct has said, but I’m afraid I don’t agree the matter is too complex for us to consider. I’m satisfied I have enough persuasive evidence (which I will be addressing below) to reach a fair decision without seriously impairing the effective operation of our service. Overall, I’m persuaded Mrs M was scammed, and that first direct ought reasonably to have reached this conclusion when she reported this matter directly – without waiting on the outcome of the police investigation into C. I therefore agree with the Investigator that first direct should reimburse Mrs M’s loss. I’ll explain why. Mrs M authorised the payment to C, so the starting position in law is that she is liable for it. But there are further considerations given that she says she was scammed into making it. Mrs M made the payment to C on 8 October 2024. At this time, the Reimbursement Rules were in effect. These require Payment Service Providers (PSPs) such as first direct to reimburse APP scam victims, and to give a reimbursement decision within five “business days” of a scam claim being made, in most circumstances. In some instances, this can be extended to a maximum of 35 business days. There is no specific provision under the rules for a PSP to delay giving an answer beyond this maximum timeframe, regardless of any ongoing police investigations. The Reimbursement Rules define an APP scam as: “Where a person uses a fraudulent or dishonest act or course of conduct to manipulate, deceive or persuade a Consumer into transferring funds from the Consumer’s Relevant account to a Relevant account not controlled by the Consumer, where: • The recipient is not who the Consumer intended to pay, or • The payment is not for the purpose the Consumer intended For the avoidance of doubt, if the Consumer is party to the fraud or dishonesty, this is not an APP scam for the purpose of the FPS reimbursement requirement or the FPS reimbursement rules.” I consider it clear Mrs M intended to pay C for what she believed was a legitimate purpose (for a property development investment). So, I’ve gone on to consider whether C’s intended purpose was broadly aligned with her at the time – and, if not, whether this was the result of a dishonest deception by C. For the following reasons, I’m persuaded C fraudulently deceived Mrs M into making this payment. C held accounts which show around £6,000,000 being spent in a way that appears consistent with property development. But they also received around £20,200,000 from investors. C’s standard unit price was £13,500. So, that means they would need to have entered around 1,500 property agreements. But the outgoing payments aren’t consistent with C paying for rent, refurbishments and furnishings for this many agreements. C claimed to hold contracts with local authorities – as they would need to have done to fulfil the investor agreements. But their beneficiary statements show no incoming payments from local authorities or housing providers. Additionally, several local authorities have confirmed they didn’t have a working relationship with C – with one confirming an invoice C used to supposedly demonstrate their working

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relationship was forged. A director of C was also removed from Companies House due to their identity being stolen; they had no connection to C. This speaks to a dishonest deception by C. Our service has seen evidence that at least six different units were sold to multiple investors. This comes from complainants providing the individual property addresses they thought their investment was purchasing across around 100 complaints. This information also shows around half of those addresses were in buildings where the owners have confirmed they didn’t have a relationship with C. We’ve also seen instances where the properties remained derelict after the investment was made or remained under construction when they were supposedly generating an income. All of this makes it seem unlikely C intended to use Miss G’s payments for genuine property development investments. Turning back to C’s accounts, we can see around a third of the investment capital wasn’t used for the purpose of securing and developing properties to be used for social housing – ranging from cash withdrawals, to payments to individuals involved in operating C, to paying jewellers, restaurants and more. There are further substantial withdrawals and payments which the purpose for is unknown. Around £440,000 C received could be legitimate income, although none of this came from local authorities or social housing providers. But in comparison, £2,500,000 was paid to investors. It’s clear this didn’t come from genuine income – strongly indicating C were operating a Ponzi scheme. Overall, there is little to suggest any transactions are consistent with C completing property development for the benefit of investors, and much more to suggest C weren’t using investors’ funds for the intended purpose. Even if any of the funds C received were used for property development, it seems likely this was done with the intention of encouraging further investment as part of an overall scam. For these reasons, I’m persuaded first direct should have concluded the payment made on 8 October 2024, was an APP scam, and gone on to consider Mrs M’s claim, within the maximum timeframe set by the Reimbursement Rules. I’ve therefore gone on to consider whether it should have agreed to reimburse this payment. The Reimbursement Rules set out the requirements for when covered payments should be reimbursed. In summary, first direct would be expected to refund Mrs M if she was vulnerable at the time of making the scam payment and this materially impacted her ability to protect herself from the scam. From what I know of Mrs M’s circumstances, I don’t think she can fairly be deemed vulnerable – nor has she suggested she should be. first direct would still be expected to refund Mrs M unless it showed an exception applied under the “Consumer Standard of Caution”. That would involve showing that, as a result of gross negligence, Mrs M failed to meet one of the following standards:  The consumer should have regard to any intervention made by their PSP and/or by a competent national authority.  The consumer should, upon learning or suspecting that they have fallen victim to an APP scam, report the scam claim promptly to their PSP.

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 The consumer should respond to any reasonable and proportionate requests for information made by their PSP for a limited number of purposes (principally to validate the scam claim and whether it is reimbursable).  The consumer should, after making a scam claim, consent to the PSP reporting to the police on the consumer’s behalf or request they directly report the details of a scam to a competent national authority. first direct hasn’t sought to rely on any of these exceptions. Nor do I think any could fairly be applied here. I’m mindful first direct did intervene on the payment sent to the scam. It showed Mrs M a scam warning when she made the payment on 8 October 2024 relevant to the payment purpose, she had previously selected. I’ve thought about the payment purpose Mrs M gave – paying an invoice or bill. Our Investigator asked Mrs M why she selected this option rather than another payment purpose option, such as, investment. Mrs M shared that as she received an invoice, she felt this was the best option to select. I don’t consider this to be so unreasonable of Mrs M in the specific circumstances here and so, I’m not persuaded she failed to have regard to first direct’s intervention when selecting the payment purpose. Further, first direct had a call with Mrs M to discuss the payment she was making. Mrs M shared she was making an investment and that she’d made previous investments and knew who they were. She confirmed she’d received the payment details via an invoice that was sent by email. I don’t think any warnings first direct gave in this call were particularly relevant to the features of this scam – given that it was a complex/sophisticated operation. Overall, I’m satisfied Mrs M didn’t fail to have regard for first direct’s interventions with gross negligence. Rather, she engaged with the interventions, but they didn’t give her reasonable cause to suspect C were a scam. I’m therefore persuaded first direct should reimburse this payment in line with the Reimbursement Rules, which allow first direct to deduct a £100 excess from the refund should it choose to do so. Putting things right To put things right, HSBC UK Bank Plc trading as first direct should refund Mrs M the payment she sent to C on 8 October 2024, less a deduction of up to £100 for the excess it can choose to apply. HSBC UK Bank Plc trading as first direct should pay 8% simple interest per year on top of this total amount, running from 35 business days (as defined by the FPS Reimbursement Rules) from when Mrs M reported the scam to the date of settlement. This is to compensate her for the loss of use of these funds. If HSBC UK Bank Plc trading as first direct bank considers that it’s required by HM Revenue & Customs to deduct income tax from that interest, it should tell Mrs M how much it’s taken off. It should also give her a tax deduction certificate if she asks for one, so she can reclaim the tax from HM Revenue & Customs if appropriate. In order to avoid the risk of double recovery, HSBC UK Bank Plc trading as first direct is entitled to take (if it wishes) an assignment of the rights to all future distributions that arise in relation to the scam payment I’m upholding (such as from the police investigation and criminal proceedings) before paying the award. My final decision For the reasons given above, my final decision is that I uphold this complaint and direct HSBC UK Bank Plc trading as first direct to put things right in the way I’ve set out above.

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Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs M to accept or reject my decision before 24 April 2026. Staci Rowland Ombudsman

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