Fraud victims die before receiving Ombudsman payout

Six victims of fraud have died while waiting for their banks to pay out compensation after an independent arbitration service went back on its initial ruling in favour of the investors.

In March 2023, after a year-long inquiry, the Financial Ombudsman Service (FoS) found that dozens of investors had been taken in by a “very sophisticated scam”. Police and the administrators wrote to FoS to say they agreed. Yet nine months later the FoS overturned its decision.

At the time, victims were told this was because new information had come to light but an executive subsequently wrote to MPs admitting “there was no new information”. The FoS has never explained its decision to overturn.

In October the FoS U-turned once again, ordering banks to pay compensation. Despite this, several victims remain several thousand pounds out of pocket. As part of a joint investigation with BBC Radio 4’s The Naked Week, The Observer spoke to the family of one individual who died just two days before his bank confirmed it would reimburse him.

In January, an independent assess­ment upheld several complaints made on behalf of the victims, saying the FoS’s handling of the case had been “poor” and that its U-turns were not “routine” and had resulted in “shaking confidence” in the service.

One victim, Will Collins, who works for Refundee, a claims recovery group, highlighted the disparity between access: freedom of information releases show banks and industry lobbyists regularly met FoS representatives, while victims were blocked from meetings.

In 2024, new rules came into force, requiring pay­ment service providers to reimburse customers who fall victim to certain types of fraud. The maximum reimbursement level was eventually set at £85,000, down from a n initially proposed £415,000. Banks still argue they face significant costs for fraud-detection systems and have pushed for exemptions in cases of gross negligence by customers.

A spokesperson for FoS said: “Often not all the evidence is immediately available to us, and we must wait for other investigations to conclude before we can assess the full situation, weighing up all the facts and considering the relevant laws and regulations… Ultimately, it’s not our role to prosecute fraud, it’s to decide if a bank should be held liable for an investor’s losses. These cases are now being resolved, and we are working closely with the consumers and businesses to keep them updated.”

The victims were only able to work as a group because they were mistakenly copied into an email early on. Collins also warns that changes to the way victims can seek compensation risk making it harder for people to be reimbursed. Under the new rules, victims must seek compensation within 13 months of their final payment: previously it was up to six years.

Refundee analysis of 594 investment fraud cases found that 66% of cases would be rejected under the new rules, with an average loss of £46,618.

“This case is part of an ongoing battle to ensure that victims of investment fraud are able to access their rights with their banks and are treated in the same way as victims of other types of fraud,” Collins said.

Photography by Getty