Britcoin can bolster fight against ‘fraud epidemic’, experts argue

The digital pound could be an important weapon in regulators’ fight against the rising tide of fraud, experts have argued. 

With the widespread scale of scams in the UK, Quant’s chief executive Gilbert Verdian said “we need a complete reset”. Quant builds technology for blockchains, including those underlying central bank digital currencies (CBDCs). 

According to UK Finance figures, £1.2bn was lost to fraudsters in 2022. The scale of fraud has been labelled an “epidemic”. In response, the government recently announced plans to tackle the rise in fraud, including the creation of a specialist fraud squad.

However, the plans have been criticised for failing to force big tech firms to reimburse victims when the scam originates online. Many have called for greater cooperation between the companies involved across the fraud chain.

But Verdian suggested that fraud protections can be built into the architecture of a CBDC, like the digital pound, enabling a far greater degree of protection than is currently possible.  

“When you look at CBDCs, it’s an opportunity to be able to embed fraud protection at a whole network level and then have fraud prevention done by the network itself,” Verdian said. 

Using CBDCs, regulators will be able to look at the “pattern of fraud” right across the payments network. This will help to identify suspicious activity which can then be directly targeted. 

Rules can be embedded into the network to prevent payments to these suspicious accounts. 

Verdian said the network “has logic built in… embedded logic can be a fraud check before the payment is even initiated.”

While many have raised concerns over the potential threat to privacy from CBDCs, particularly in regards to stopping financial crime, Verdian said a CBDC network is actually “no different from today’s reporting and compliance perspective”.

“The government doesn’t need a CBDC to monitor against crime and have law enforcement act on it. They can do that today. A CBDC is not going to give them anything extra they don’t have today.” 

He also pointed out that consumers actually give far more personal data to social media companies than they do to financial institutions. 

Fraud prevention is an important aspect of the Bank of England’s consultation for the digital pound. In the consultation paper the Bank says “protection from fraud is a material consideration for the digital pound”.

It suggests”fraud monitoring” as a potential benefit for the private sector. Verdian agreed, saying “there isn’t a commercial bank that hasn’t looked at this”.

Keith Bear from the Cambridge Centre for Alternative Finance said that a key consideration regarding fraud is how the digital pound would interact with other forms of money, like cash and bank accounts. 

“The design for fraud prevention has to cater for that,” he said, which could potentially be a challenge.