Combating ‘Digital Arrest’ Scams – Kill Switch and Fraud Insurance as India’s New Digital Safety Nets

Digital Arrest Latest News

• India is witnessing a sharp rise in digital frauds, particularly the phenomenon of “digital arrest” scams, leading to massive financial losses and erosion of trust in digital payments. 
• In response, a high-level inter-departmental committee (IDC) constituted by the Ministry of Home Affairs (MHA) is examining systemic solutions, including a transaction “kill switch” and a fraud insurance mechanism. 

‘Digital Arrest’ Scams

• Meaning:
  • Cyber-enabled fraud: Fraudsters impersonate law enforcement officials via video calls. Victims are shown fake IDs, arrest warrants, and threatened with arrest. Leaked personal data is used to build credibility.
  • Social engineering: Victims are kept under psychological pressure for hours and coerced into transferring money to mule accounts.
• Estimated losses: Victims across India are believed to have collectively lost nearly Rs 3,000 crore to digital arrest scams, prompting the Supreme Court to take suo motu cognizance of the issue.

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Key Proposals Under Consideration

• Transaction ‘Kill Switch’:
  • An emergency button embedded in UPI apps, and banking/payment applications.
  • Once activated all banking and financial transactions are instantly frozen, preventing further outflow of funds during suspected fraud.
  • It aims to create last-mile consumer protection, and real-time intervention in fraud scenarios.
• Tracking and blocking fraudulent transactions: Exploring systems to identify suspicious transactions, prevent instant splitting of funds into multiple mule accounts, and address rapid laundering techniques used by fraud networks.
• Fraud insurance mechanism:
  • Proposal to introduce insurance coverage for fraud-related losses in banking.
  • Driven by increasing scale and sophistication of digital frauds, and recognition that traditional audits and compliance are insufficient.
  • RBI’s evolving stance – Shift from viewing fraud as merely a compliance issue to a systemic and balance-sheet risk.

Insurance Framework Involved

• The IDC is chaired by Special Secretary (Internal Security), MHA, with representatives from:
  • Ministry of Electronics and Information Technology (MeitY), 
  • Department of Telecommunications (DoT), 
  • Ministry of External Affairs (MEA), 
  • Department of Financial Services (DFS), 
  • Ministry of Law & Justice (MoLJ), 
  • Ministry of Consumer Affairs (MoCA), 
  • Reserve Bank of India (RBI), 
  • CBI, NIA, Delhi Police, and 
  • The Indian Cyber Crime Coordination Centre (I4C) (with the CEO, I4C acting as Member-Secretary).
• Additionally: MeitY met major IT intermediaries (Google, WhatsApp, Telegram, Microsoft) earlier.

Role of RBI and Insurance Sector

• RBI observations:
  • There were 23,879 fraud cases involving an amount of Rs 34,771 crore as of 2024-25. 
  • The RBI’s Payment Vision 2025 report has proposed studying the feasibility of setting up a Digital Payment Protection Fund (DPPF) to provide security cover to defrauded customers and payment instrument issuers.
• Expert view: Existing cyber insurance does not cover first-party fraud losses, especially those caused by customer manipulation.
• Preferred option – Insurance pool model:
  • Backed by contributions from banks, insurers and potentially supported by regulatory frameworks – that could spread fraud risk across the system.
  • This will be similar to terrorism insurance pools in several countries. 
  • Such a structure would help manage tail risks while keeping premiums affordable.

Key Challenges and Way Ahead

• Operational complexity: Avoiding misuse or accidental triggering of the kill switch.
  • Technology-based safeguards – AI-driven fraud detection and transaction velocity checks.
• Interoperability: Uniform adoption across banks, UPI platforms, and fintech apps.
  • Strengthened coordination – Banks–Insurers–Regulators–Tech platforms partnership.
• Moral hazard: Risk of reduced consumer vigilance if insurance is guaranteed.
  • Consumer awareness – Nationwide campaigns on digital arrest scams.
• Regulatory coordination: RBI, IRDAI, MeitY, and banks must act in sync. 
  • Regulatory clarity – Clear SOPs for kill switch activation and reversal.
  • Legal backing – Amendments to IT and banking regulations for rapid response.
• Coverage gaps: Current cyber insurance inadequate for social engineering frauds.
  • Insurance innovation – Creation of a fraud insurance pool under IRDAI leadership.

Conclusion

• India’s rapid digitalisation has outpaced traditional risk-control mechanisms, making digital fraud a systemic threat rather than a mere compliance issue. 
• The proposed initiatives represent a paradigm shift towards proactive, consumer-centric and system-wide protection. 
• If implemented with robust safeguards, regulatory coordination and public awareness, these measures can significantly enhance the resilience and credibility of India’s digital financial ecosystem.

Source: IE