The FCA, UK Treasury and the Payment Systems Regulator (PSR) are working together on new rules to combat authorized push payment (APP) fraud. These rules aim to protect consumers from their financial loss and hold Payment Service Providers (PSPs) accountable for their role in preventing and addressing fraud.

Key proposals

Payment delay authority: The Treasury has proposed amendments to the Payment Services Regulations (PSRs 2017) to enable PSPs to delay making a payment transaction where they have reasonable grounds to suspect fraud or dishonesty.

The policy aims to increase firms’ ability to tackle APP fraud while minimizing the impact on legitimate payments by giving PSPs more time to investigate suspicious transactions and reduce the likelihood of fraudulent payments going though.

FCA guidance: To support this policy, the FCA is proposing changes to the guidance in its Payment Services and Electronic Money – Our Approach  (Approach Document) to explain how PSPs should apply the legislative changes to minimize the impact on legitimate payments and understand their responsibilities.

It is also consulting on changes to the Approach Document, which gives clarity on how the FCA expects PSPs to address suspicious inbound payments while continuing to process payments quickly and efficiently. 

Reimbursement requirement: To reduce the impact of APP fraud and encourage the payment industry to invest further in fraud prevention, the PSR has introduced an APP fraud reimbursement requirement within the Faster Payments System. This will come into effect on October 7, 2024.

What is APP fraud?

According to the latest report from the Payment Systems Regulator, there has been an increase in the number of UK APP scams with £341m ($445m) lost to them in 2023.

APP fraud is where someone is deceived into authorizing a payment either:

• to an account that they think belongs to a legitimate payee but is actually controlled by a fraudster, or
• for something they believed was legitimate but is actually fraudulent.

A key issue is establishing precisely when a customer has lost control. This issue is particularly pronounced in connection with payments sent between accounts in the same name and payments made to crypto exchanges. For further analysis see UK PSR report highlights scale of APP fraud.

New leading role for PSR

The PSR is now taking a leading role in improving outcomes for consumers by introducing new protections for victims of APP scams, while incentivizing industry to implement enhanced fraud prevention tools. Banks and payments companies currently reimburse, on a voluntary basis, customers for fraud at widely varying rates, with some refunding almost 100% of cases, and others less than 10%.

The PSR’s new reimbursement framework will launch in the UK in October 2024. This will expand scam protections to encompass both sending and receiving firms who will both be equally liable for the cost of reimbursement. The current framework places the financial liability solely on the sending firm, ignoring the vital role receiving firms play in preventing scammers from accessing the UK payment systems. This requirement means banks and other PSPs will be required to reimburse payment service users who fall victim to APP fraud in most cases, said the PSR.

The PSR is also considering a reduced cap on the maximum liability banks face for fraud. If confirmed, the new cap would be in line with the Financial Services Compensation Scheme (FSCS) limit which is currently £85,000 ($111,864) and well understood by consumers. The PSR said this would still ensure enhanced consumer protections against APP scams, with clear incentives on financial firms to continue doing all they can from preventing fraud from happening in the first instance. See UK payments regulator consults on reduced cap for banks’ fraud coverage.

By strengthening the rules and regulations governing APP fraud, the FCA, PSR and UK Treasury are working to protect consumers from financial losses and also support the payment services industry.

The FCA said: “Reducing and preventing financial crime, including APP fraud and money laundering, is an FCA priority for and is a key outcome in the Business Plan 2024/25.”