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Why does Equity Bank Uganda Ltd take centre stage of fraudulent withdraw of customers’ deposits?

By Ismail Wantale

Equity Bank is stated on its website as one of the fastest growing banks in UG with a network of over 40 branches and 50+ ATMs with Internet Banking, Eazzy Banking and Point of Sale (POS) Machine services.

Ugandans have since raised concerns about their deposits in EQ Bank, but let’s look at the duty a bank has to its customers. Generally, the bank owes the customer a duty of care, meaning that the bank must use reasonable care & skill while conducting business concerning customers.

When a customer opens an account with a bank, he will give the bank authority to operate the account in accordance with his instructions, So long as the bank acts within its mandate, it may debit his account. The mandate should be clear and unambiguous that is…

by clearly identifying the person or persons who – can draw money on the account, A bank that pays out on a patently ambiguous mandate without first seeking the mandate of the customer, runs the risk of being unable to debit the account.

Toulson J in Patel Vs Standard Chartered Bank [2001] Lloyd’s Rep Bank 29 stated that from time to time, a bank is under a duty to obey instructions as long as they comply with the original mandate. In the past most payment instructions were given by use of cheques but in modern banking practice they are likely to be given by electronic means for example through the use of a debit card or through internet banking.

But do Bank Agents have a hand in this fraud?

Regulation 15 of the Agency Banking Regulations 2017 points out prohibited activities by agents

Whereas the Ugandan Regime under Reg 17 under the Agency banking Regulations provides for consumer protection, it fails to provide for GPS that enables security organs like Police and bank officials to easily locate agents where the money was withdrawn.

Is Digital Banking safe? On 18 July 2022, the UG High Court issued a landmark decision in Aida Atiku Vs Centenary Rural Developlment Bank Ltd stating that while banks have an obligation to put in place secure systems, account holders have corresponding responsibilities to ensure they keep their banking information and security credentials secure and confidential. Failure to do so would effectively obliterate any protection that the bank offers against unauthorised transactions.

Court also noted that fraudsters may use various channels to gain access to a bank customer’s account including the use of social interaction to prompt the customer to divulge information which should otherwise not be shared with third parties.

In October 2021, seven people were arrested for allegedly defrauding people over Sh 5 billion through the online banking system in Kampala who specialize in computer usage and banking systems.

Police said the fraudsters use the information they get to manipulate phones and access other services including registering that person for online banking, in the event that the owner of the phone is not registered.

Should potential clients carry out due diligence on existing banks in the Industry?

Adequate due diligence on banks on ensuring they have adequate controls and procedures put in place to safeguard their deposits is equally important to protect their deposits in the future.

Additionally, Police and Bank of Uganda blame the continuous e-bank fraud on weak controls within commercial banks since customers money is often stolen by banking officials conniving with outsiders.

A major cause of fraud is poor management. This is reflected in form of inadequate supervision. A junior staff with fraudulent tendencies that is not adequately supervised would get the impression that the environment is safe for the perpetuation of fraud.

Poor management will also reflect ineffective policies and procedures, which a fraudulent minded operator in the system will capitalize on. Even where there are effective policies and procedures in place, fraud can still occur with sometimes deliberate skipping of these procedures

Poor salaries and poor working conditions. Employees that are poorly paid are often tempted to fraudulently convert some of the employer’s monies to their own use in order to meet their personal and their social needs.

Is the Equity Banking App safe to use?

In July 2021, Equity Bank UG on its Facebook page released a statement: “Banking online is secure, HOWEVER, there are extra steps needed to protect your Account

– Always log out of the Eazzy Banking App

– Always use a phone password

This statement was issued after the App was recently updated in 2020 to shield customers from fraudsters with the Fingerprint locking update and OTP update (One Time Password) sent to your registered line on the Account.

In January 2022, Equity Bank quietly released Equity Mobile, another banking App more like the same as Eazzy Banking App and a phase out began mid-year.

Even with all these technological changes or upgrades, Ugandans have been victim of the Equity Banking App fraudulent withdrawals and their questions have been left unanswered

But could these Applications have loopholes that are exploited by fraudsters?

Section 31 of the Data Protection & Privacy Act 2019 of UG provides for complaints of breach and non-compliance if any person believes the data collector is infringing on their rights to NITA- UG.

Ugandans have been victim of e-fraud after subscribing to Online banking through stealing their phones, and flashing their accounts even without the account security details but by mere existence of the App being once used in a phone. Is the new Equity Mobile App a Game changer?

The writer has interests in Prosecution, Investigations, Taxation, Construction and Rotary.

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