James Baird considers the
latest EU fraud regulation proposals.

 

Photograph of James Baird, GateleyThe need for secure
data and its processing can be an unwitting impediment to fraud
prevention. Fraud costs the UK and EU financial industry many
millions each year.

Consumers likewise have the
cost of credit increased and may be financially and emotionally
affected when a they become victims of fraud such as identity
theft. Fraud prevention in consumer lending requires secure data
but also access to, and the effective exchange of, data between
financial institutions and public bodies. This is not always
effective or possible given the stringent nature of data protection
rules and the lack of harmonisation of data protection laws within
the EU.

The European Federation of
Finance House Associations and the Association of Consumer Credit
Information Suppliers assembled a task force to consider the impact
of existing pan-European data protection regulation and its ability
to fight fraud.

The task force produced a
report in December 2011 which looked into the differing types of
fraud; the different legal concepts relating to fraud within EU
frameworks; how lending institutions detect and prevent fraud; the
role of databases in that process; the size and extent of the
problem; and the obstacles faced by data protection
rules.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

The report made three key
recommendations to the EU policy-makers:

  • to recognise fraud
    prevention and its detection as a legitimate purpose for data
    processing,
  • to adopt full-harmonisation
    in future EU data protection frameworks, and
  • to encourage public-private
    data sharing.

The publication of the report
coincided with the European Commission’s review of the Data
Protection Directive. The commission published its proposal for a
new legal framework on 25 January.

The commission’s proposed
regulation directly applicable to all national EU states without
individual state legislative adoption and a directive requiring
member state adoption. The commission felt regulation would address
the issue of the fragmented data protection framework which
currently exists in member states.

The task force has generally
welcomed the proposal as “a good starting point” although it does
have some key concerns.

The definition of consent in
Article 4 of the regulation has been altered to include the
criterion of explicit consent, so that an individual consent is
“any freely given specific, informed and explicit indication of his
or her wishes by which the data subject either by statement or by
clear affirmative action signifies agreement to personal data
relating to them being processed”.

But Article 5 constrains
consent to the minimum use of data by lenders.

Clearly, many lenders require
broad information when accessing affordability and discharging
responsible lending practices.

Article 6 retains the
requirement for data processing to be lawful and retains the
framework in the 1995 Data Protection Directive, but does not adopt
the central recommendation of the task force to recognise fraud
prevention and detection as a legitimate purpose.

Data protection is key to
preventing fraud and the commission’s proposal goes some way to
assisting that goal, but more fine-tuning is required to ensure an
effective pan-European fraud prevention legislative
framework.

James Baird is asset
finance partner at Gateley