Money in scammers’ bank accounts will be used for the first time in an attempt to stem a rising tide of fraud.

Lloyds, Britain’s biggest bank, will take £7m out of accounts operated by gangsters and hand it to law enforcers in a new scheme to crack down on scams, which fund other financial crimes such as drugs and human trafficking.  

The pilot project will finance a dedicated scams unit at the City of London Police and a new specialist team to track down criminals through cyber investigations.

Funding will also go to counselling for fraud victims, providing one-to-one phone support, advice and aftercare, as well as online safety classes for pensioners, the bank said.

It comes amid rising fraud levels, with £1bn lost to scams in the first half of this year, almost a third more than the same period last year. 

The money will come from accounts linked to scammers who have had their assets frozen and where the bank has been unable to trace victims for over a year. 

Banks say they make every effort to reunite fraud victims with their cash, but that tracing the original owner of the money is not always possible due the stolen money changing hands too many times and the “trail going cold”.

There was at least £130m sitting in these frozen accounts in 2017, according to estimates from the banking trade body UK Finance at the time. The figure today is thought to be far higher. 

Current regulations prevent institutions from accessing the money, other than to reimburse the original owners, resulting in millions languishing unused. 

Campaigners are now pressing for new rules to make it easier for the dormant cash put to good use. 

If successful, it is hoped the pilot scheme, which has been approved by the Financial Conduct Authority and the Home Office, will pave the way for similar projects. 

Fraud experts welcomed the move but said all banks needed to pay up to combat rising fraud levels. 

Richard Emery, of security firm 4Keys, said the idea was laudable but that the initial funding was only a fraction of the money which could be put towards funding the fight against fraud.  

“All banks need to follow suit and need to dig deeper into their pockets. Fraud levels are on track to break further record highs next year and we need serious investment in preventative measures to stop it,” he said.