A House of Lords committee has called on the government to make banks, not customers, legally liable for internet fraud.

The House of Lords Science and Technology Committee called for legislation to force banks to cover customer losses incurred through e-crimes in its follow-up report into personal internet security published in August 2007.

The report claims that, under the current system, banks often deny liability for password and Pin fraud, claiming customer negligence or even complicity in the fraud.

"We reiterate our strongly held view that the current reporting sequence is wholly unsatisfactory and that it risks undermining public trust in the police and the internet," says the report.

The committee also recommended that victims of cyber-crime should be able to report incidents directly to the police, reversing the current process which requires them to report incidents to their bank.

The peers also called for a data breach notification law that would require organisations publicly to acknowledge breaches when customer security has been compromised.

The report acknowledged recent proactive moves in terms of protecting UK citizens from online crime, following the government's embarrassing data breaches.

"A level of indifference on the part of the government has now been dispelled only as a result of recent incidents involving serious losses of personal data, " the report said.

The call was backed by Bill Beverley, security technology sales manager at F5 Networks.

"If people were to adopt best practices, many of these data breaches would not have occurred," he told vnunet.com.

Beverley believes that this move would "add some teeth to the legislation" and help spur complacent companies into action when it comes to the protection of data and the liabilities involved when breaches occur.

He added that it is imperative that government agencies are held to the same standards at private companies.