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The regulator's latest Financial Risk Outlook has discovered that consumer confidence in online banking is fragile, with over half the UK's active Internet users very concerned about the risk of fraud.

And with some justification. According to APACs, the UK Payment Association, fraud losses through Internet banking totalled £14.5mn in the six months to June 2005 and although still relatively low, losses have more than trebled since the same period in 2004.

The FSA found that if

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banks were to tackle these losses by shifting the liability fully towards the consumer, more than three quarters of users say they would abandon Internet banking. Forty-five per cent said that the banks should assume full responsibility for security while 95 per cent said that they should at least be partially responsible.

However, although most online banking users have taken steps to secure their PCs, a quarter admitted that they did not ensure that their software is always up-to-date.

'Most consumers recognise they have some responsibility for security but they are not necessarily following this obligation through,' said Philip Robinson, financial crime sector leader at the FSA. 'To tackle the losses associated with fraud, banks should continue to drive security and this must include educating consumers on the importance of protecting themselves.'

New measures currently being introduced by banks include two-factor authentication where users are required to enter two means of identification, random numbers generated by a physical device and a password.