Liability in unauthorized transactions is a rapidly expanding area within Banking & Finance Disputes as digital banking, online payments and mobile financial services continue to evolve across the UAE and the wider region. When funds are withdrawn, transferred or used without a customer’s authorization, disputes arise over whether the bank, the customer or a third party is legally responsible for the loss. These conflicts often concern fraudulent transfers, card-not-present transactions, phishing attacks, identity theft, SIM swap fraud, account takeovers and malware breaches. Because the financial and reputational consequences can be significant, understanding liability allocation, evidentiary standards and regulatory obligations is critical for both customers and financial institutions.
Unauthorized transaction liability is shaped by federal UAE laws, Central Bank regulations, payment systems rules, free zone frameworks and underlying account agreements. Banks owe customers a duty to maintain secure systems, verify transactions and act with reasonable care in preventing fraud. Customers, in turn, must take reasonable steps to safeguard credentials and notify the bank promptly if they detect suspicious activity. Most disputes hinge on whether the transaction resulted from bank negligence, customer fault, security breaches or unavoidable sophisticated fraud outside the customer’s control.
These occur when stolen card data is used for online purchases or when physical cards are cloned. Banks frequently rely on payment processor records to argue the transactions were authenticated, while customers claim they never authorized the activity. The key question is whether authentication systems were sufficient and whether customer negligence contributed to the breach.
Fraudsters trick customers into revealing credentials through fake emails, SMS messages or calls. Banks often assert that voluntary disclosure of credentials shifts liability to the customer. Customers counter that banks failed to implement adequate fraud alerts, transaction limits or behavioural monitoring systems that could have prevented losses.
Fraudsters gain control of a customer’s mobile number to intercept OTPs, enabling unauthorized transfers. Liability disputes focus on whether the bank should have required additional verification steps or whether the telecom provider or fraudster bears responsibility. These cases often involve parallel claims against multiple parties.
Hackers infiltrate online banking accounts using malware, keyloggers or brute-force login attempts. Banks may argue that customer devices or networks were compromised, while customers insist the bank failed to detect unusual activity. Expert forensic evidence is often required to determine the source of the breach.
Banks must implement robust security systems, including two-factor authentication, fraud monitoring tools, suspicious activity alerts, and transaction velocity limits. They must also maintain adequate cybersecurity protocols, encryption standards and incident response plans. Failure to meet these obligations can result in liability even if customers inadvertently contributed to the fraud.
Customers are expected to protect their banking credentials, secure personal devices, avoid sharing OTPs, use trusted networks and monitor accounts regularly. They must notify banks quickly once unauthorized activity is detected. Delayed reporting may weaken claims or shift liability, particularly if further fraudulent activity occurs after the customer became aware of the issue.
These cases often hinge on digital evidence such as IP logs, device fingerprints, authentication records, bank server logs, telecom data, and behavioural analytics. Courts assess whether authentication was “strong,” whether the bank acted reasonably based on risk indicators, and whether unusual patterns should have triggered intervention. When transactions originate from unusual locations, devices or times, customers may argue the bank failed to recognise red flags.
The Central Bank of the UAE imposes strict requirements on banks regarding cybersecurity, fraud detection and customer protection. Payment systems regulations also mandate dispute-resolution mechanisms and liability guidelines. DIFC and ADGM frameworks similarly impose high standards of conduct. Regulatory investigations often influence how liability is ultimately assessed in civil proceedings.
Courts and tribunals analyze liability based on:
In some cases, liability is shared between banks and customers based on comparative fault. In others, banks may be fully liable if systems lacked adequate safeguards or failed to detect suspicious behaviour.
Telecom providers, merchants, payment processors and technology vendors may be implicated in unauthorized transaction disputes. For example, SIM swap cases may involve telecom negligence, while card fraud may implicate merchant data breaches. Determining liability requires coordinating evidence across multiple stakeholders and jurisdictions.
Disputes can be resolved through bank complaint channels, Central Bank mechanisms, litigation in UAE courts, or arbitration where contractually agreed. DIFC and ADGM courts often handle complex unauthorized transaction claims due to their advanced procedural frameworks and expertise in financial disputes.
Banks should adopt real-time fraud monitoring, behavioural analytics, adaptive authentication and enhanced customer education programs. Customers should enable security features, avoid public networks, maintain updated software and activate transaction alerts. Prompt action upon detecting suspicious activity is critical to limit losses and strengthen legal claims.
Liability in unauthorized transactions remains a dynamic and evolving area of banking and finance disputes in the UAE. As digital banking expands and fraudsters become more sophisticated, both banks and customers must take proactive measures to protect financial data and prevent unauthorized activity. Clear understanding of responsibilities, strong security frameworks and effective dispute-resolution processes are essential to managing and mitigating the legal and financial risks associated with these claims.
