Bank of Scotland plc trading as Halifax · DRN-6128640

The complaint Mr Y complains that Bank of Scotland plc trading as Halifax (‘Halifax’) won’t reimburse the funds he lost when he says he fell victim to a scam. What happened Mr Y says that he was approached by a company I’ll call ‘S’ in this decision and asked to buy art. He said he wasn’t interested until he had sold an existing piece of art he was struggling to sell. The representative of S said that if Mr Y bought the piece, he would help Mr Y to sell the art he already owned. In September 2022 Mr Y paid £1,020 to S. Whilst S said it had found a buyer for Mr Y’s existing art the price was too low. Mr Y was told that if he bought three prints from a different artist and bundled them together with his existing piece it would make the whole bundle attractive to buyers. Mr Y says he made further payments for the three prints on this basis and on the understanding that they would be sold in late November/early December 2022. But, when the time came, Mr Y was told it would be difficult to sell his art so close to Christmas. In January 2023 Mr Y was told that market conditions had changed and he would need to keep the art for three years, which had never been the plan. He was then unable to contact S and later heard it had gone into liquidation. Information provided to Mr Y by the liquidator lead him to believe he was the victim of a scam. Mr Y made faster payments which totalled £7,747.68 to S. In April 2023 Mr Y received £1,000 from S. Mr Y contacted Halifax to report what had happened. Later, his appointed representative sent a letter of complaint which said it was widely accepted that S operated a scam and that Halifax should reimburse his loss under the Contingent Reimbursement Model Code (‘CRM Code’). Halifax said Mr Y has a civil dispute with S which isn’t covered by the CRM Code and his payments weren’t unusual. Mr Y was unhappy with Halifax’s response and brought a complaint to this service. In summary, he said that the investigator had misapplied the CRM Code and this service’s balance of probabilities test and failed to take into account the overall findings of the judge in a High Court freezing order judgement. Mr Y’s representative also said that Halifax failed to provide warnings or intervene when the payments were made. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. In deciding what’s fair and reasonable in all the circumstances of a complaint, I’m required to take into account relevant: law and regulations; regulators’ rules, guidance and standards; codes of practice; and, where appropriate, what I consider to be good industry practice at the time.

-- 1 of 5 --

Where I can’t know for certain what has happened, I need to weigh up the evidence available and make my decision on the balance of probabilities – in other words on what I think is more likely than not to have happened in the circumstances. In broad terms, the starting position at law is that Halifax is expected to process payments and withdrawals that a customer authorises it to make, in accordance with the Payment Services Regulations (in this case the 2017 regulations) and the terms and conditions of the customer’s account. Here, it’s not in dispute that the payments were authorised, so the starting position is that Halifax isn’t liable for the transactions. But, at the time Mr Y made the payments Halifax was a signatory of the CRM Code which required firms to reimburse customers who have been the victims of authorised push payment (APP) scams in all but a limited number of circumstances. But the CRM Code only applies if the definition of an APP scam, as set out in it, is met. I have considered whether Mr Y’s claim falls within the scope of the CRM Code, which defines an APP scam as: ...a transfer of funds executed across Faster Payments…where: (i) The Customer intended to transfer funds to another person, but was instead deceived into transferring the funds to a different person; or (ii) (ii) The Customer transferred funds to another person for what they believed were legitimate purposes but which were in fact fraudulent. The CRM Code is explicit that it doesn’t apply to all push payments. It says: “This Code does not apply to: (b) private civil disputes, such as where a Customer has paid a legitimate supplier for goods, services, or digital content but has not received them, they are defective in some way, or the Customer is otherwise dissatisfied with the supplier”. To decide whether Mr Y is the victim of an APP scam as defined above I have considered: - The purpose of the payments and whether Mr Y thought this purpose was legitimate. - The purpose the recipient (S) had in mind at the time of the payments, and whether this broadly aligned with what Mr Y understood to have been the purpose of the payments. - Whether there was a significant difference in these purposes, and, if so, whether it could be said this was as a result of dishonest deception. Mr Y made the payments with the intention of buying artwork. I haven’t seen anything to suggest that he didn’t think this purpose was legitimate. Like the investigator, I’m not satisfied the available evidence shows that S intended a different purpose for the payments, or that Mr Y’s and S’s purposes for the payments weren’t broadly aligned. I recognise this is a finely balanced case. But, as I have said above, where the evidence is unclear or inconclusive, I must make my decision on what I think is most likely to have happened, based on the evidence I have. Mr Y was told S would arrange to store the prints he bought. He has said that the prints are being held in an offshore holding facility. So, it seems that the prints Mr Y paid for were bought and stored as agreed and that Mr Y’s funds were used for the intended purpose. In support of his belief that he is the victim of a scam Mr Y has referred to a court freezing order in respect of S’s accounts. In that case the judge said that when considering whether there was a good arguable case on the merits to freeze accounts, he had to consider the

-- 2 of 5 --

threshold test, which was “more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success”. So, it’s clear the judge wasn’t making balance of probabilities findings, as this service does. The judgment provided evidence of the investment being misrepresented to investors – specifically that S gave the impression that it was acting as a broker or intermediary, rather than a retailer of the art, and that S would manage investors’ portfolios and provide advice on what to buy and when to sell. The judge at the hearing also made several references to the possibility that S intended to defraud investors. The judge was clear though that he was not conducting a fraud hearing. He referred to things that were “arguably fraudulent” when considering whether there was a good arguable case for a freezing injunction but made no finding on whether the directors of S intended to defraud investors and made it clear that certain matters were for trial. Investors like Mr Y may have a potential claim for misrepresentation and breach of fiduciary duty. But I think investors and S had broadly the same understanding of the reason for the payments – which was to purchase artwork. Any management of the investors’ portfolio by the company was secondary to this. The judge stated that information provided to investors gave the impression that S only made a profit by way of a 2% fee on sales to the investor and a 5% fee on any resale. He went on to note that investors weren’t told that S was purchasing at wholesale prices and selling on to investors at a significant mark-up (an average of 495%). The failure to disclose this profit was said to be “arguably fraudulent”. But the value of any piece of artwork is a subjective matter. Artists and dealers will have their own opinions about the value of any artwork and there is no strictly objective test. The judge was also presented with evidence that the company purchased artwork from artists and companies, at least one of which was entirely independent, and that it wasn’t unusual for retailers to inflate the cost of art. And the judge made it clear that the issue of the value of the artwork was to be considered at a trial, rather than at the hearing. So I don’t think a mark-up in price, even to this extent, is enough to demonstrate that a scam has taken place. In the judgment the judge also mentioned that there was no real secondary market for the prints S was offering, which wasn’t what investors were told. S didn’t make any genuine re- sales of prints and instead bought back prints from some investors who pushed for them to be sold. This meant there was no genuine increase in market value of the prints. But the judge again made it clear that the merits of whether there had been fraudulent activity was to be considered in a trial. Overall, I don’t think the judge’s finding that there was a good arguable case for fraud is the same as a finding that it’s more likely than not that the true purpose of the investment was fraudulent or that investors had been scammed. The matter is no longer going to trial as an out of court settlement was agreed between S and the liquidator. The liquidator has confirmed that the details of the settlement are confidential with no admission of liability or fraud by S. Details of what the amount paid related to haven’t been disclosed. A settlement can be reached for many reasons, and I don’t think the settlement provides sufficient further evidence that the company intended to operate a scam. I also understand there is an ongoing police investigation into S, but I don’t think this is enough to say a scam has taken place. The police are looking into whether a crime has

-- 3 of 5 --

taken place, but the investigation has not yet concluded, and it might be that the police say nothing untoward has happened. A statement from the liquidators of the company also confirms that artwork was purchased and that there was spending from the company’s account for standard business expenses and genuine trading costs. And while I understand the liquidator is pursuing a claim for fraudulent trading, I’ve not seen the evidence they have relied on so can’t agree that it is enough to say on the balance of probabilities, at this stage, that a scam has taken place. I don’t think I can safely say the circumstances here meet the high legal threshold and burden of proof for fraud or the specific definition of an APP scam I must apply here. I’m not persuaded that the available evidence is sufficient to safely conclude that the purpose S intended for these payments was different than the purpose Mr Y intended. This means that I think Halifax acted reasonably in not refunding Mr Y the money he paid to S. It is possible that material new evidence may become available, which suggests that S took these payments using dishonest deception. If that happens, Mr Y can ask Halifax to reconsider his claim under the CRM Code and, if he is not satisfied with its response, bring a new complaint to our service. Did Halifax do enough to protect Mr Y when he made the payments? As well as Halifax’s obligations under the CRM code, the regulatory landscape, along with good industry practice, sets out other requirements for banks to protect their customers from fraud and financial harm. So, in line with this, I think Halifax should fairly and reasonably: • Have been monitoring accounts and any payments made or received to counter various risks, including anti-money laundering, countering the financing of terrorism, and preventing fraud and scams. • Have had systems in place to look out for unusual transactions or other signs that might indicate that its customers were at risk of fraud (among other things). This is particularly so given the increase in sophisticated fraud and scams in recent years, which banks are generally more familiar with than the average customer. • In some circumstances, irrespective of the payment channel used, have taken additional steps, or made additional checks, before processing a payment, or in some cases declined to make a payment altogether, to help protect customers from the possibility of financial harm from fraud. I’ve also considered whether Halifax should have identified that Mr Y could be at heightened risk of financial harm from fraud as a result of any of the payments he made and what difference any action I would have expected it to take as a result would have made. Mr Y opened his Halifax account in July 2022. The initial payments he made were relatively low in value. By the time Mr Y made the payments of £3,000 and £3,627.68 on 30 September 2022, S was an established payee and Mr Y had made two payments of similar values a few days apart to a different company. In any event, even if Halifax had spoken to Mr Y about his payments to S, I don’t think it would have had any concerns, or that the payments wouldn’t have been made. I don’t think there was anything about the investment or Mr Y’s communications with S that would have made Halifax think it was anything other than a legitimate investment. Mr Y has asked for £1,000 compensation for distress and inconvenience and the poor handling of his claim. His representative hasn’t explained in what respect the service

-- 4 of 5 --

provided by Halifax was poor and I can’t see that this was the case, so I’m not making an award. Overall, whilst I’m sorry to hear Mr Y has lost funds and of the impact on him, I can’t fairly require Halifax to reimburse him. My final decision For the reasons stated, I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr Y to accept or reject my decision before 14 April 2026. Jay Hadfield Ombudsman

-- 5 of 5 --